ACCOUNTS OF THE CONTINGENCIES FUND

Resolved,
	That an humble Address be presented to Her Majesty, That she will be graciously pleased to give directions that there be laid before this House a Return of the Accounts of the Contingencies fund, 2006-07, showing:—
	(1) a balance sheet;
	(2) a cashflow statement and;
	(3) notes to the account; together with the Report of the Comptroller and Auditor General thereon.— [Mr. Roy.]

Oral Answers to Questions

DEFENCE

The Secretary of State was asked—

Mental Health

Stephen Crabb: If he will make a statement on mental health support services for members of the armed forces.

Derek Twigg: With permission, I should like to make a short statement before answering the question. I am sure that the whole House will join me in sending sincere condolences to the family and friends of Guardsman Daryl Hickey, who was killed by small arms fire in Helmand province Afghanistan on Thursday 12 July.
	Defence medical services mental health staff deploy on major operations to provide assessment and care to personnel in theatre. In the UK, community-based mental health care is available at 15 Ministry of Defence-run regional departments of community mental health, plus satellite centres overseas, while in-patient care, when necessary, is provided regionally in specialised psychiatric units under a contract with the Priory group.

Stephen Crabb: I am grateful to the Minister for that reply and join him in paying tribute to Guardsman Daryl Hickey, whose courage and sacrifice should not be forgotten.
	Given the numbers of service personnel returning from the conflicts in Iraq and Afghanistan with mental health traumas ranging from depression and anxiety to post-traumatic stress disorder, and given that there may be many more whose conditions could take years to manifest themselves, does the Minister agree that unless measures are taken now substantially to expand the provision of a dedicated Army mental health specialist team, rather than just relying on NHS and voluntary-sector provision, important as they both may be, Britain risks facing a mental health time bomb in the decades ahead among soldiers and veterans?

Derek Twigg: The support that is given pre- and post-deployment is quite significant, in terms of advice, including on what signs serving personnel should look for. There is also good support in theatre, with psychiatric support and even a visiting consultant. There is significantly greater awareness these days of mental health problems and a greater ability to talk about them. As I said in my answer, we also have departments of community mental health care throughout the country and significant support, if needed, via the Priory unit.

Eric Joyce: Have my hon. Friend or any of his right hon. Friends at the Ministry of Defence had any contact with the organisation Combat Stress? If so, have they had a chance to discuss its future funding?

Derek Twigg: My hon. Friend makes an important point. Combat Stress is obviously an excellent organisation and it does a superb job in supporting those who develop mental health problems, often later on, after leaving service. We funded it last year to the tune of £2.9 million and we are in discussions this year to give it a significant increase in its funding.

Michael Penning: I, too, pay tribute to the 1st Battalion Grenadier Guards, my own former battalion. It is having a desperately difficult time, with so many of its guardsmen coming home injured or, sadly, dead.
	The Minister is aware that soldiers are disproportionately represented among the homeless, especially in London. What is the Ministry of Defence doing to go out and see how many soldiers are homeless and living rough, and what are we doing to alleviate the problem?

Derek Twigg: A study conducted recently of former armed forces personnel showed that there has been a substantial drop in rough sleepers in London. Also, we have a number of schemes throughout the country, in Yorkshire and Aldershot—we are also looking at Colchester—to provide spaces for homeless service personnel and to work with them. In addition, the Compass scheme in London works with the Royal British Legion and does an excellent job. I have visited the scheme and talked to a number of the ex-soldiers and RAF personnel there, who were full of praise for the work and the support that the scheme had given them, not only by providing them with accommodation, but by helping them to get back into work and in some cases start up their own businesses.

Lindsay Hoyle: My hon. Friend must be aware that we have to learn lessons from the Falklands war, the Gulf war and every other conflict, in that the support from mental health services has not been there. That support has also not been seamless for the people who have left the services. What will he do to ensure that that neglect does not continue and that support is provided not only while people are in the services, but when they leave?

Derek Twigg: My hon. Friend makes an important point. There are clearly lessons to be learned from the past. There is a lot more knowledge these days about mental health and post-traumatic stress disorder, and about the ways in which we approach these matters. We have been looking into a number of ways of improving the system for former armed forces personnel, including better funding for Combat Stress, the extension of the medical assessment programme that I announced a few weeks ago—which will go back to include the 1982 veterans of the Falklands—and the reservist mental health scheme for those who are deployed in Iraq. We are also looking at a new pilot scheme involving the Ministry of Defence, the health services and Combat Stress that will develop centres of excellence to support those who develop a mental illness as a result of their service in the armed forces.

Wounded Service Personnel

Richard Benyon: If he will make a statement on care for servicemen and women who have been wounded in Iraq and Afghanistan.

Des Browne: We provide an excellent level of care for our service personnel who have been wounded on operations. This includes: life-saving emergency care in the front line, in our field hospitals and in NHS hospitals in the UK; the excellent facilities at the defence medical rehabilitation centre and our regional rehabilitation units; and treatment for those whose mental health has been affected.

Richard Benyon: As the wounded come to terms with the consequences of their injuries, their thoughts turn to issues such as housing, and to whether they will be allowed to remain in the armed forces, and if not, to what provision exists to assist them in moving into civilian life. Will the Secretary of State give the House an assurance that everything that can be done for our wounded—many of whom have severe disabilities—is being done in respect of informing them of their entitlements and providing assistance in getting back into civilian life? Will he also give his support to any civic or community group that recognises the heroism and sacrifice of these injured servicemen as they try to return to their civilian lives?

Des Browne: I agree with the hon. Gentleman's assessment of our responsibility to those who return injured from theatres of combat. He will know that, because of the advances that have been made in rehabilitative care, such people are increasingly able to continue with their Army careers. That is a function not only of advances in clinical care and rehabilitation processes but of the way in which the services interact with those people. Caseworkers are involved, as is a programme known as pathway care, which is doing work in this area. In all these programmes, we work with the voluntary sector and other agencies including local authorities and the NHS, and I have no difficulty in giving the hon. Gentleman the commitment that he asks for—namely, that we will continue to do so. He also asks for a reassurance that everything that can be done is being done. I cannot give him that reassurance, because I am absolutely certain that we will find ways of improving what we have already improved as we proceed along these lines, and we intend to do that.

David Crausby: I recognise the fantastic work that is being delivered by the NHS at Selly Oak hospital in Birmingham. The introduction of military-managed wards has been very much welcomed by our service personnel. Will my right hon. Friend assure me that such wards will be the norm, so that our service personnel will have the support of their comrades at these difficult times?

Des Browne: I assure my hon. Friend that we are pleased with the progress that has been made on the military-managed ward at Selly Oak hospital. That hospital treats our casualties in a world-class way, and I am pleased that, at least in regard to clinical care, that view is shared by those on all the Front Benches in the House. There has been some debate about whether we could improve the environment in which injured military personnel could recuperate, and we have made improvements in that regard. So much so, in fact, that General Sir Richard Dannatt, the Chief of the General Staff, said in March:
	"There is nowhere better in the country, nowhere more expert at polytrauma medicine, than that hospital in Selly Oak. That's why our people are there."
	I can reassure my hon. Friend that we will learn from those lessons to ensure that we continue to improve.

Nicholas Soames: Would the Secretary of State accept that it is a great failing of the Ministry of Defence that more is not known about the great triumph, success and heroism of British soldiers, particularly those who have been seriously wounded? Will he note the point made by my hon. Friend the Member for Newbury (Mr. Benyon) about the need for the wider community to recognise the astonishing achievements and heroism of the wounded? Does not he agree that they should be invited to race meetings, motor racing, boxing fights, and so on, so that people can see them, welcome them and give them appropriate recognition for their astonishing achievements?

Des Browne: I absolutely agree with the hon. Gentleman. I am pleased to advise the House, and those who might have missed this, that a significant number of those who have been injured in combat were recently guests of, I think, the British Motor Racing Club—I shall almost certainly get this wrong, and I do not want to—at the recent Formula 1 race. Whoever it was—and I should know exactly who invited them—is to be commended for their generosity and for their reasons for choosing to honour those people.
	May I say to the hon. Gentleman and to the House that I regret the change made some time ago—there were reasons for it—whereby soldiers, airmen and sailors who are off duty do not appear in uniform on our streets? If more of our armed services were able to appear in uniform, people would have a better chance of relating to them. If I can increase the numbers who are able to do that, it will go a long way to address the hon. Gentleman's point.

David Borrow: With the best will in the world, it is inevitable that not all servicemen and women injured in combat can be treated in military-run wards. Some will be placed in civilian-run wards because that is the best place for them to be. Will my right hon. Friend assure me that, when soldiers are placed in civilian-run wards, they will receive the sort of care that is appropriate for individuals who have been injured in combat? Will recognition be given to the special nature of the trauma and difficulties that they have gone through in receiving their injuries, as that can be very different from injuries sustained in civilian life?

Des Browne: My hon. Friend is right in identifying the challenge that we would face if we had to bring in all those in the services receiving in-patient treatment, as they would barely fill two hospital wards on any typical day. In those circumstances, it is impossible to imagine how the re-establishment of a military hospital, for example, could provide the excellence of clinical care that those people would receive in NHS hospitals. A relevant example is the opportunity to bring 16 trauma specialists to one bedside in Selly Oak hospital—that cannot be done anywhere else. We continually address the challenge of generating the environment that is commensurate with the circumstances that have caused the injuries to these young men—and it is young men more often than not. I will do everything I can to ensure that we continue down the path that we have embarked upon.

Liam Fox: As we have discussed in the House before, better body armour inevitably produces fewer fatalities, but more disabilities than in previous conflicts. The concept of the MOD's duty of care therefore needs to extend more than ever beyond the time actually served in the military. It needs to extend to those with chronic disability, in the knowledge that the NHS will give them—whatever the effects on targets—the priority that they deserve. Those with psychiatric damage need to know that the appropriate military psychiatric help will be available years later when it is needed. Why, unlike in the US, do we still have no guidelines on traumatic brain injury? Does the Secretary of State understand how unacceptable it is to the House when we read in yesterday's papers about a young man, Lance-Corporal Twiddy, who said:
	"Once you are discharged, the MOD doesn't want anything to do with you"?
	That is utterly unacceptable.

Des Browne: I am sure that the hon. Gentleman will understand why I shall desist from responding to the circumstances of one particular individual, but he has my assurance that I will personally look into the circumstances of the young man whom he identified and find out whether that was the case—if so, I will do everything I can to see that it is no longer the case for that individual.
	On the more general issue of traumatic brain injury, we are studying developments in the US: as we speak there is a liaison officer out there and we want to learn from what the US has done. The hon. Gentleman has a medical background and training that I do not have, so I am not in a position to assess that, but I rely on others to do it for me. Recently, evidence from the US has shown that, when it comes to the care of veterans, they have something to learn from us, too.

Armed Forces (RSA Citizens)

Bob Russell: How many citizens of the Republic of South Africa are serving in the armed forces.

Bob Ainsworth: At the end of the last financial year, approximately 900 South African citizens were serving in the UK regular armed forces.

Bob Russell: With approximately 10 per cent. of the British Army not being British, I am sure that the whole House is grateful to the thousands of young men and women—mainly from Commonwealth countries, but from a total of 57 countries—who are serving in Her Majesty's armed forces. As to South Africa, is the Minister satisfied that, as a result of South African Government legislation, South African citizens will still be able to serve in the British armed forces?

Bob Ainsworth: We are aware of problems with the proposed legislation in South Africa and my right hon. Friend the Secretary of State has spoken to the South African Minister of Defence on the telephone and written to him about it. The result of those conversations provides some degree of reassurance about what the South African Government intended to do. However, we are not there yet and nothing is pinned down. We are still concerned, as are the people directly concerned. We are trying to keep them informed of the situation and if there are any developments we most certainly will inform them.

Iraq

David Kidney: What progress he has made in withdrawing troops from Iraq.

Des Browne: From a peak of about 45,000 personnel deployed to Iraq during major combat operations in 2003, we have drawn down progressively to 8,000 prior to handing over three of our four provinces. Since then, we have reduced in stages to 5,500. The commanders on the ground assess that that is the right number of troops to discharge our current responsibilities. As I have made clear, we expect to see further reductions as we hand over to the Iraqi security forces in Basra city.

David Kidney: I thank my right hon. Friend for that answer. I welcome recent troop withdrawals and look forward to more soon. My question is about the safety of troops during withdrawal. Is a transitional period between active patrols and returning home envisaged, during which troops will be, as it were, confined to barracks? Will that be at the Basra air base? As I am sure he is aware, that base is subject to dozens of rocket attacks every day. If there must be such a transitional period, could our troops be safely elsewhere in the region but close enough to be on call if needed?

Des Browne: It is not envisaged that our troops will be confined to barracks, as it were, at any time. Operational decisions in relation to force protection are a matter for commanders. Invariably, such operations, which are known as layered, include attempts to interdict those who try to attack the base. I reassure my hon. Friend that no effort is spared to ensure that the best possible protection is provided to our forces deployed on operations. In the last year alone, we have invested millions of pounds in new equipment, including body armour and armoured vehicles. In relation to indirect fire—IDF—a number of kinetic and static capabilities have been deployed better to protect our personnel from such attacks. For reasons of operational security, I cannot elaborate on that or on the equipment employed. Unfortunately, however, the effects of indirect fire attacks can never be mitigated completely. We ought to expect those to continue in the current environment.

James Arbuthnot: As the Secretary of State knows, the Defence Committee was in Iraq last week, and we were bowled over by the courage and enthusiasm of the men and women from the UK whom we met. Does he agree that there is a judgment to be made about the viability of our force there? Given what is happening there at the moment, does he agree that we are now close to the irreducible minimum?

Des Browne: I thank the right hon. Gentleman for sharing that impression, which has been left on all of us who have visited our troops in theatre, whether in Iraq or Afghanistan: there is no question but that they are the best of the best. For that reason, we have the responsibility to ensure that they are protected as well as possible in the dangerous tasks that we ask of them. The optimal number of troops is a matter for operational advice. The advice that I have received is that the troops currently there are configured in the right way to carry out the tasks that we ask of them, but we keep that matter constantly under review.

Kevan Jones: Along with the right hon. Member for North-East Hampshire (Mr. Arbuthnot), I visited Basra last week. Major General Jonathan Shaw and the men and women under his command are doing a tremendous job, and we should be thankful that they are doing it. Does the Secretary of State agree that while the transfer of Bara to provincial Iraqi control will be welcome, setting artificial time lines for that decision would be a mistake and would possibly put our troops in further danger?

Des Browne: General Shaw and the troops that he commands are doing an excellent job, and I shall pass on to him my hon. Friend's comments. He speaks, as does the Chairman of the Defence Committee, the right hon. Member for North-East Hampshire (Mr. Arbuthnot), for all Select Committee members who have visited. My hon. Friend's point is absolutely correct, and that is why I was pleased to see that the issue of security and the conditions for drawdown of troops were significantly addressed in the report of our own Iraq study group. This is a process of judging the security challenge, the Iraqi security forces' ability to meet it, and our own ability to respond to any circumstances that may threaten to overwhelm them at some time in the future, in the overall context of the development of the politics of that part of Iraq. That judgment must be made before we can make decisions about our troops. It is not an exact science, and it certainly does not lend itself to arbitrary timetables that would only put our people more at risk than they are already during the current period of transition.

Nick Harvey: What does the Secretary of State make of the votes on withdrawal in both Houses of the American Congress? Is it still our policy that security will be the only consideration that determines the timetable for withdrawal? Given that this year is shaping up to be the bloodiest since 2003, is there not a risk that that could be a very long way off, and that the militias and insurgents will be given a say over the timetable?
	What does the Secretary of State make of the Iraq Commission report, and what does he think our role will be after we hand over Basra province? Is not the best idea the commission's suggestion that we concentrate on training and advice, and set a date for an end to our active deployment?

Des Browne: The hon. Gentleman invites me to intervene in domestic American politics and respond to decisions made in Congress. I do not intend to do that. Obviously such decisions are relevant to us, but our strategy remains the same. It cannot properly be defined as a strategy dependent solely on security; it is far from being that. I do not want to repeat my last answer in detail, but it described the path that we have taken.
	Our strategy does not hang on the insurgents and on determination of the timetable. There has been an increase in the number of our casualties, but that is a function of the transition that we are undergoing. On almost every occasion we have deployed troops abroad, our casualty rate has risen when we have sought to emerge from combat and reduce the strength of our forces during a period of transition. In this instance, that is a function of a number of elements, not least the fact that the militia deployed in Basra city, supported by the Iranians, are determined to take the credit for driving us out of that city. I think that people who understand how insurgencies work would understand that that is the case. It is not the whole explanation for our casualty rate, but it is part of the explanation and people need to understand it.

Jeremy Corbyn: Since the United States is planning to withdraw, would it not be better if the British also set a date, or at least had a contingency plan, so that there is a clear timeline? I know the Secretary of State is reluctant to do that, but clearly the pressure is on for us to specify a point by which all the occupying forces will be out of Iraq and Iraq must decide its own future.

Des Browne: I do not consider myself to be under pressure to declare a timeline. In fact, I consider myself to be under pressure not to declare one. The declaration of a timeline would exacerbate the dynamic that I have just explained.
	It is obvious what is going on in southern Iraq, where at least 85 per cent. of the violence is directed against our forces. There are people there who want to claim credit for driving us out, in a process that we have already announced and on which we are partly embarked. If my hon. Friend cannot contain his patience and watch us progress in the orderly way in which we have progressed for months, that is a matter for him, but he will certainly not persuade me to put our troops in any more danger than they are in already.

Angus Robertson: During the past week the United States Congress has voted, for the third time this year, to withdraw forces from Iraq. Moreover, Prime Minister al-Maliki has said that coalition troops can leave whenever they like. Why is it only neo-Conservative United States Republicans and this Government who are delaying the final withdrawal of our brave service men and women from Iraq?

Des Browne: Prime Minister al-Maliki said his assessment was that in about three months' time the Iraqi security forces would be ready to take over responsibility for security in Basra. That was his assessment, and it is important, because it is part of the process of assessment that we will undergo, and have already undergone, in three of the four provinces from which we have withdrawn our troops and which we have allowed to be handed over to the security control of the Iraqis.
	Since I took up my current post, I have consistently explained the precise strategy we are following, both from the Dispatch Box and elsewhere. We have never deviated from that strategy: we have not been forced to change by any set of circumstances, by votes in any other Parliament or by decisions of any other Government. I and my predecessor have explained the process; it is a logical one, and it is in the interests of the Iraqi people, towards whom we have a responsibility. It is also consistent with the United Nations Security Council resolution, and it represents the international community's will. Most importantly, it is the best and most sensible way to maintain our contribution to the Iraqi people and to protect our people—although they are, for reasons I have now twice explained this afternoon, under additional threat at present.

Dennis Skinner: Can we assume from the answers that the Secretary of State has given that the process of withdrawal, which I support and welcome, is purely a British one?

Des Browne: We cannot make any such assumption. The process of transition to Iraqi control has been ongoing for some time now. On 21 February, the then Prime Minister, Tony Blair, stood at the Dispatch Box and explained exactly what we were going to do. We currently have 5,500 troops in Iraq. If, as we expect, we manage in a matter of weeks to hand over the Basra palace to Iraqi security control, we will be able to draw down a further 500. We will then be in a position of overwatch, which we discussed in respect of an earlier question. At that stage, we will assess the ability of the Iraqi security forces in consultation with our allies—and chiefly with our principal ally, the United States of America—and decide whether we can move on to withdrawing our forces. We will also at that stage explain our continuing support for the Iraqi Government—because I am sure that there will be continuing support.

Edward Leigh: Is the Secretary of State aware of the recent comments of Lord Inge in the House of Lords that our involvement has been a strategic failure? The fact is that our troops are now dying at a greater rate than the Americans: they can expect to be attacked within 20 minutes of leaving base. After giving up the Basra palace, those gallant men will have to retreat to the airport. How can they effectively run a country or conduct peacekeeping operations from an airport? What is our strategy, apart from staying there just to prove that we have a strategy? We should get out and get out now.

Des Browne: I can only suspect that the hon. Gentleman has only recently entered the Chamber as I spent some time, in answer to an earlier question, explaining our strategy—explaining the logic of it and why it involves assessments of the security situation, the Iraqis' ability to respond, our ability to support them and the political support that the security forces are receiving from the Iraqis. The commission suggests that we are mistaken in thinking that the goal can be achieved by military means alone, but we have never suggested that the future of Iraq was dependent on military means alone. It is fundamentally dependent on the ability of the Iraqis themselves to stand up properly their organisations and the level of political support for those organisations in certain parts of the country. That is their challenge, and we can do only so much to help them. However, that analysis of the situation gives no support to the assertion that the hon. Gentleman has just made.

Military Recruitment and Retention

Chris Bryant: If he will make a statement on levels of recruitment and retention in the armed forces.

Derek Twigg: In 2006-07, the armed forces achieved 97 per cent. of their recruitment requirement. Recruitment and retention are constantly monitored and there are significant manning challenges and shortages in specific areas. We are taking action to address them by continuing to improve recruitment and by renewing efforts on retention, and by restructuring our forces to focus effort in those areas most in demand. Those measures include targeted financial retention initiatives and extensions to normal engagement lengths.

Chris Bryant: On retention, there is a paradox in the fact that the quality and standards of training in the armed forces are now so high that almost all armed forces personnel have such a strong set of skills in terms of logistics, communications and many other areas that they are immensely valuable in the private sector. However, many of those who leave because they get offered much better pay elsewhere want to maintain a strong connection with the armed forces. Is there a way to maintain such stronger links in the future, not only through people volunteering as reservists for tours of duty but in other ways?

Derek Twigg: I take on board my hon. Friend's point about there being significant challenges. We want to retain such connections through the reservist route and the Territorial Army; we wish to encourage that. As my hon. Friend rightly says, many people leave the armed forces with a wide range of skills and abilities which they put to good use when they enter the private and public sectors. We always keep our options open in terms of what we can do to improve retention and recruitment and continuing connection with the armed forces.

Patrick Mercer: I am interested to hear what the Minister has to say. I am sure he agrees that while recruiting figures may be improving, many of the units are woefully undermanned. I am also sure that he agrees that the job of Commander Recruiting Group is absolutely key and that he is the most important brigadier at the heart of this problem. Why then was that gentleman absent for more than six months last year on a court martial?

Derek Twigg: I cannot answer the specific question about the individual concerned, but I will write to the hon. Gentleman with the reasons. However, significant resources and effort go into recruitment and retention, and I am sure that he knows that. We accept, as I have made clear publicly and previously in the Chamber, that there are significant challenges, specifically in certain pinchpoint grades where there are shortages.
	The position in terms of voluntary outflows has remained fairly stable over the past 10 years or so, although there has been a slight increase. However, we must keep some specific grades under review and try to do more, whether through financial incentives, work-life balance or other incentives.

John Smith: Does my hon. Friend agree that the provision of a state of the art tri-service military training academy at St. Athan in my constituency will do an enormous amount to help us to achieve our desired recruitment and retention levels in Her Majesty's forces?

Derek Twigg: I know that my hon. Friend has been a great advocate of the defence training review, and that he has often expressed his support for that. However, he knows that we are looking at how to achieve package 1 and package 2 and whether the whole-programme solution is possible. As soon as we are in a position to do so, we will make an announcement.

Mark Lancaster: Given that the Minister is so keen to improve recruitment, can he explain the ludicrous decision to freeze all recruiting in the Territorial Army next year for units that do not contribute directly to Afghanistan or Iraq? For the sake of £2 million, that will decimate the TA's future.

Derek Twigg: I know that the hon. Gentleman has raised that issue previously on the Floor of the House. Given his background, may I pay tribute to his service? I know that he takes a great interest in the TA, reservists and what is happening. He knows, because we have said so, that TA operations will not be affected by those savings measures. The decision to make a small reduction in funding to the TA was carefully considered, and was targeted at areas that would cause least problems in operational effectiveness.

Ian Davidson: On recruitment, does the Minister agree that new recruits join with the prospect of joining first-class units with first-class equipment? Does he also agree that the Government are to be commended on their naval shipbuilding programme? In that context, does he agree that people would flood forward to join the Royal Navy if only he or his right hon. Friend would announce this week or next week the building of two aircraft carriers?

Derek Twigg: I understand my hon. Friend's point, but he will have to wait a little longer for the decision.

Gerald Howarth: May I associate myself with the tributes to Guardsman Daryl Hickey of the Grenadier Guards, who are based at Aldershot but are serving with enormous distinction in Afghanistan, where I had the privilege of meeting some of them?
	The Minister said that he faces a significant challenge. Is he aware that the outflow of experienced Royal Air Force officers and other ranks is particularly marked, having increased by an alarming 50 per cent. over the past three years? As the Defence Committee reported recently, the tempo of intensive war-fighting operations in the middle east is taking a relentless toll on servicemen and their families, with the Nimrod, Harrier and transport crews facing particular difficulties. I suggest that the Secretary of State tell the Prime Minister that Her Majesty's armed forces are appalled at the downgrading of his post by its being combined with the Scottish Office, and that it should be full time so that he can address the serious crisis in retention of experience personnel across all three armed services.

Derek Twigg: In response to the first part of the hon. Gentleman's question, we recognise the tremendous work and effort that our armed forces are putting in and the great pressures and challenges facing them. As we have heard today, they are doing a marvellous job. We understand the pressures, and we are working with various incentives and methods to try to improve recruitment and retention. I understand the specific point that he made about RAF pilots, and work is ongoing.
	As for my right hon. Friend the Secretary of State, anyone who knows him knows that he works very hard and does a tremendous job. It will make no difference to the efforts that he puts in for the armed forces.

Gulf War Veterans

Hugh Bayley: How many first Gulf war veterans receive war pensions; and if he will make a statement.

Derek Twigg: At the end of March 2007, some 3,265 Gulf veterans were in receipt of a war pension. This figure includes awards for both Gulf-related and non-Gulf-related injuries or illnesses, as our statistics do not distinguish the origin of the disablement.

Hugh Bayley: Terry Walker, who lived in Wheldrake in York, was a fit lance-corporal when he went to Iraq to fight in the first Gulf war. He came back with broken health and was discharged from the Army. Last month he died, leaving two children, both below the age of majority, who are being cared for by his parents. At present, no provision is being made for those two children either from his serviceman's pension or from the War Pensions Agency. Will the Minister examine the case as a matter of great urgency and ensure that provision is made for the children of Terry Walker?

Derek Twigg: On behalf of the Government, I offer my sincere condolences to Mr. Walker's family and friends. I am sure that my hon. Friend appreciates that it would not be appropriate for me to comment on an individual case on the Floor of the House, but I assure him that I will look into it.

Afghanistan

Paul Flynn: How many British personnel have been killed and seriously injured in Helmand province since February 2006.

Des Browne: The deaths of British personnel and injuries sustained while performing their duties with characteristic dedication are a source of profound regret and I repeat my admiration for the work our forces do. Since 1 February 2006, until 12 July, 43 British personnel have been killed in Helmand province. Up to 30 June 2007, 51 personnel have been seriously or very seriously injured in Helmand.

Paul Flynn: The original hope for the Helmand mission was that it would last for three years without a shot being fired. Half a million shots have been fired and it may last for 30 years. There has been no improvement in the drug situation, no reduction in the threat of terrorism, and precious little reconstruction because the non-governmental organisations will not operate there—all bought at the cost of the worst casualties that Britain has suffered since world war two. Do not those awful outcomes, particularly the loss of life, cry out for a reassessment of the nature and scale of the Helmand mission before it drifts into Britain's Vietnam?

Des Browne: The whole House knows my hon. Friend's views on the deployment of our forces in Helmand province. Those forces are deployed there with the forces of 36 other countries. The Government are clearly of the view that the deployment of forces in Helmand province in support of the international security assistance force there—in conjunction with Operation Enduring Freedom and in support of other countries that are there for reconstruction purposes—is not a discretionary operation but a compulsory one for the security of the world. That view is shared by the United Nations, by Secretary-General Ban Ki-Moon, whom I met recently, by the whole of the European Union, by Javier Solana, whom I met last week to discuss the matter, and by almost all the rest of the world. Despite those facts, my hon. Friend and a small number of other people think that it is the wrong thing to do. I fundamentally disagree with him. I do not think that the people of this city would be as secure as they are—they still face risks from terrorism—if we were not prepared to do what we are doing in Afghanistan. I do not think that the people of the developed world would be as safe as they are if we were not prepared, as an international community, to do what we are doing in Afghanistan. The fact that it is a dangerous thing to do does not make it any less right to do it.

Ann Winterton: Will the Secretary of State recognise the importance of evacuating seriously injured casualties from Helmand province by helicopter as quickly as possible? Will he indicate whether the future addition of six Merlin and eight Chinook helicopters will be used for that purpose? Will their addition bring helicopter numbers up to requirement? If not, will he consider hiring helicopters for casevac—casualty evacuation—and other measures as a way of filling the undoubted gap in the provision of helicopters?

Des Browne: I recognise that helicopters are vital to our success in operations in Afghanistan and Iraq. I pay tribute to the hon. Lady for her consistent questioning of me and other Ministers on support for our troops and in other respects. She knows that we have made additional hours available and that further work continues on spares and crewing to increase the hours per month that helicopters can fly. She knows that we have developed a way of turning individual helicopters into treatment centres, rather than having dedicated casevac helicopters; that is the right thing to do. She also knows that I announced the intention to buy six additional Merlin helicopters, which will be available within a year, and to convert the eight existing Mark 3 Chinook helicopters to make them available for deployment. We have invested £230 million in that regard, but if that does not provide sufficient helicopter support for our troops in their continuing commitment to operations abroad, I am of course prepared to identify and deploy other resources to that effect.

Sarah McCarthy-Fry: I was in Helmand province about three weeks ago. I pay tribute to those service personnel who gave their lives or were seriously injured in helping the Afghan Government to beat the Taliban. They were helping other British servicemen and women and servicemen and women from other countries in carrying out development and reconstruction work in Helmand. Does my right hon. Friend agree that that development and reconstruction work is the key to peace and stability, not only in Helmand or even Afghanistan but in the whole region?

Des Browne: I commend my hon. Friend and the other right hon. and hon. Members who have taken the time and trouble to visit our forces in Afghanistan. I realise that not everyone can do that—it depends on a degree of support from the Ministry and from the troops in that country—but those who have had that experience are consistent not only in their praise for what is being done but in bringing back the message that our troops on the ground are in no doubt of the value of what they are doing, despite the manifest and obvious dangers. They are in no doubt about the contribution they are making, and daily they see the improvements in Helmand province, which are sometimes falsely measured against metrics that we here in London set for them. The best way to assess whether our troops are making a difference to the people of Helmand province and Afghanistan is to ask them, and they are in no doubt about that.

John Redwood: But will the Secretary of State accept that the loss of life and serious injury in both Afghanistan and Iraq is running at far too high a level for any of us to be complacent or comfortable? Will he, with his military advisers, look again at what other measures can be taken in terms of support, equipment, back-up and evasive action to give our troops a greater chance of surviving?

Des Browne: I share the right hon. Gentleman's regret at any loss of life. The loss of any soldier is a tragedy. The loss of any innocent life is a source of profound regret. There is no complacency on my part about the loss of any life—far from it. I devote a significant amount of my time as Secretary of State for Defence, and have done for the past 14 months, to doing precisely what he asks me to do. I consider every day whether what we are doing in Afghanistan is the right thing to do and whether we are doing it in the right way. He and all other Members of the House can rest assured that our forces' protection, security of life and progress in development are uppermost in my mind.

Andrew Murrison: British military fatalities are, tragically, outstripping the capacity of the coroner service, so the receiving coroner, Wiltshire's David Masters, to whom I spoke this morning, is relieved that his long-awaited ministerial meeting has—under pressure—been brought forward to 25 July, and that he will now be able to put the case for the resources needed to tackle the military inquest backlog over which this Government have presided, to their lasting shame. As a redeeming measure, what will the Secretary of State do on behalf of the deceased and their long-suffering families to ensure that the coroner has everything he needs, without any more procrastination, in accordance with last Thursday's remarks by his right hon. and learned Friend the Leader of the House?

Des Browne: First, may I welcome the hon. Gentleman to his new responsibilities on the Front Bench? All members of my team look forward to working with him.
	The Wiltshire coroner does not have a backlog of military inquests. He has one pre-April 2007 inquest hearing outstanding, which is on the deaths of 10 crew members killed in a Hercules crash in January 2005. He held a pre-inquest hearing on that case in February. The timing of that inquest is entirely within his control. Given the complexity and the nature of the inquest, I fully understand why it has taken such a time to get to the full inquest hearing, and I make no comment about that.
	The most significant thing that we have done, apart from providing additional resources to address the backlog that had built up in Oxfordshire, is to remove the reliance on a single coroner. That means that in cases that would normally have been the responsibility of the Wiltshire coroner because of where the body rested, there is now no reason for him to be responsible for carrying out the inquest. Specifically, of those cases that are on his list, 24 can be expected to be dealt with by home coroners—that is, coroners nearer the homes of the families involved. In my view, that is the best development that we could ensure, in terms of properly respecting the families. It leaves only 10 of the cases on the list that has been used by the media as his responsibility.
	The hon. Gentleman can rest assured and can reassure the Wiltshire coroner that the issue, which I took up immediately on taking office, sits on my desk every day. I have been working on it with colleagues from the Department for Constitutional Affairs, and now am doing so with colleagues from the Ministry of Justice. I will do everything that I can, and if the issue needs additional resources, I will identify them, but I do not accept that there is a backlog.

Paul Flynn: Owing to the unsatisfactory nature—

Mr. Speaker: Order. The hon. Gentleman cannot get away with that. He has to do that immediately.

Paul Flynn: I did.

Mr. Speaker: Well, the hon. Gentleman allowed other supplementaries to be asked. He knows the rules of the House as well as I do.

Afghanistan

David Jones: What recent assessment he has made of the military capability of the Taliban in Afghanistan.

Des Browne: The Taliban are currently able to threaten Afghan and international security forces in parts of eastern and southern Afghanistan by means of improvised explosive devices, suicide bombers and small-scale attacks. They have not been able to hold territory in the face of offensive action by Afghan and international security forces. The recent loss of a number of senior commanders as a result of action by international forces is likely to have had an impact on the Taliban's ability to plan and co-ordinate operations.

David Jones: What is the Secretary of State's assessment of the recent statement made by the United States Secretary of Defence, who said that there is evidence of a substantial flow of weapons from Iran to the insurgents in Afghanistan—a view that appears to be supported by the Foreign and Commonwealth Office? Does the Secretary of State agree that if the Iranian regime is indeed engaged in arming the Taliban, that would amount to a direct challenge, not only to NATO but to the authority of the United Nations?

Des Browne: I agree with the hon. Gentleman. The last time Defence questions were held, I told the House that my view was that that was happening. We have successfully interdicted the transfer of arms across the Iranian border into the southern part of Afghanistan. To my knowledge, on at least two occasions—perhaps even more—we have identified markings on weaponry that suggest that it had its origins in Iran. Of course, because of the complex nature of the Iranian regime, it is often difficult to identify exactly how the situation came about, and who in the regime may, or may not, have known about it. As I have explained before in the House, in my view if a regime is constructed to create that confusion, it has to take responsibility for what the confused parts of it do. That is, and has been, my position, and that is why, in all the international discussions that I have on the issue with people from across the world, I bring the fact that that is happening to the attention of all those who wish to talk to me, and I say that they ought to make it clear to the Iranians that it is unacceptable.

Bernard Jenkin: When the Defence Committee recently visited Afghanistan we found 12 Mechanised Brigade in extremely good heart and determined to beat the Taliban, but is it not distressing that British armed forces bear the brunt while so many of our European allies fail to provide the military commitment that they should be obliged to provide under the NATO treaty? Will the Secretary of State tell the Prime Minister that he needs to spend every waking hour travelling the capitals of Europe to drum up more support for these operations? How is he able to spend time on anything other than his defence responsibilities?

Des Browne: The hon. Gentleman will be pleased to know that in the last week alone I have spoken to those in Berlin involved in providing such forces, in the person of the German Minister of Defence, and in Paris in the person of the newly appointed Defence Minister, and, as I have already told the House, I had a long conversation with Javier Solana seeking further EU support on the civil side for what we are doing. So the hon. Gentleman can rest assured that despite my responsibilities in relation to Scotland I have not fallen down on this issue or the challenge that I identified some time ago in getting other countries to increase their support to us, particularly in the south of Afghanistan. I anticipate that we will see improvements in relation to that. For example, he will have noticed that the Danish Parliament has effectively agreed to send a battle group to Helmand, which will operate partly under our command in the central part of Helmand province and will make a significant contribution to our ability to continue the work of the Mechanised Brigade there, whose success and commitment I thank the hon. Gentleman for recognising.

Peter Tapsell: The right hon. Gentleman and his two predecessors as Secretary of State for Defence have been dismissive of my warnings about the unwisdom of our latest invasion of Afghanistan, but will he at least take seriously the speech in another place last week by Field Marshal Lord Inge, to which my hon. Friend the Member for Gainsborough (Mr. Leigh) has already referred, but to whose supplementary the Minister chose not to reply? The Field Marshal, who himself has recently visited Afghanistan, said that the situation in Afghanistan is
	"much, much more serious than people want to recognise"
	and spoke of
	"strategic failure". —[ Official Report, House of Lords, 11 July 2007; Vol. 693, c. 1467-68.]
	How does that measure up against these interminable, bland replies by the right hon. Gentleman?

Mr. Speaker: Order. The hon. Gentleman certainly made a good speech there, but it should have been a supplementary. Perhaps the reply should be briefer than usual.

Des Browne: One of the challenges that I face is that any answers to the hon. Gentleman's questions would seem bland. He consistently questions me on this and I pay tribute to his consistency. The fact that we disagree does not necessarily mean that he is right and I am wrong. Earlier, I gave a litany of other experts, organisations and representatives of the international community who do not share his view.

Peter Tapsell: What about Lord Inge?

Des Browne: The first point that I need to make is that our deployment of troops to Helmand province was not an invasion. We were invited there by the sovereign Government of Afghanistan in the context of a United Nations Security Council resolution. I fully respect the views of the hon. Gentleman and Lord Inge on this, and I consider them carefully. However, the hon. Gentleman does not have a monopoly of views among those who have expertise in relation to military issues, and his views are not supported by other advice that I receive from people who are as well qualified as he is.

Fleet Requirements

Stephen Hammond: How many destroyers and frigates are required by the fleet.

Bob Ainsworth: The Royal Navy's requirement is for a fleet of 25 destroyers and frigates. This was set out in the White Paper "Delivering Security in a Changing World—Future Capabilities" presented to the House in July 2004.

Stephen Hammond: I note that four years ago the then Defence Secretary said that the MOD needed 12 Type 45 destroyers. In August 2004, the figure was reduced to eight. If  The Times today is to be believed, boats seven and eight will not be built. Why does the Minister think that the Navy's requirement is half that of four years ago?

Bob Ainsworth: The capability has not changed from that laid out in the White Paper, as I have said. The hon. Gentleman is taking a simplistic view if he assesses the strength of the Royal Navy by only counting hulls. He should listen to Commander David Shutts, who is the senior naval officer overseeing the Daring trial, which is the first of the Type 45 destroyers:
	"This ship is five levels of sophistication ahead of what we had before. Her weapon system is the most advanced in the world, but we also have a hospital on board, a Chinook-sized flight deck and room for 70 extra beds. We will get more capability with this ship than we have seen since World War II."

John Robertson: I hear what my hon. Friend has said, but he must agree that although the Daring is a class above any other destroyer that has been built on the Clyde, a lot of workers on the Clyde are looking for jobs. It appears that those jobs are linked to the decision whether there will be two carriers or one carrier. Will he make that decision now and let us know what is going on?

Bob Ainsworth: I cannot make that decision now, and my hon. Friend must wait a little while for a decision on whether the carriers will be provided. We are in the middle of a substantial shipbuilding programme, and a number of projects are either delivering ships or preparing for production. Over the next 10 years, £14 billion is likely to be allocated to those shipbuilding programmes.

Julian Lewis: I welcome the Minister to his new responsibilities. I must also say a word of appreciation about his predecessor, the right hon. Member for East Kilbride, Strathaven and Lesmahagow (Mr. Ingram), who discharged his responsibilities for a long time with great assiduity and reliability.
	The Minister's answer to my hon. Friend the Member for Wimbledon (Stephen Hammond) did not begin to address the problem of the number of frigates and destroyers. The Type 45 destroyers were always intended to have the extra capabilities that he described. If we needed eight destroyers in 2004, as the supplement to the White Paper stated, then we need eight now, let alone the 12 that were originally planned. The 2004 White Paper stated that 25 frigates and destroyers are required. Will he guarantee that that figure will not be further reduced?

Mr. Speaker: Order. The hon. Gentleman has made his point.

Bob Ainsworth: I thank the hon. Gentleman for his comments about my predecessor, who did this job for six years with, as the hon. Gentleman has said, great distinction. It is difficult to follow my predecessor, given the way in which he did the job.
	The White Paper laid out the need for eight destroyers. A decision has not been taken yet, because we are still negotiating the detail of the provision for ships four, five and six. It would be wholly wrong to sign off further ships while those negotiations continue. The hon. Gentleman knows that, and I think that he understands the point.

Alexander Litvinenko (Case Update)

David Miliband: With permission, Mr. Speaker, I would like to make a statement on developments in the Litvinenko case. This is a situation that the Government have not sought and do not welcome. However, we have no choice but to address it.
	The Government believe that Russia is a key international partner for the United Kingdom. We want to work with the Government of Russia and its people in tackling priority international issues such as climate change, Kosovo, Iran, the middle east peace process and Sudan. Russia plays a global role in the battles against terrorism, the proliferation of weapons of mass destruction, illegal migration, drugs and international crime. The cultural exchange between our two countries is extensive. Our bilateral trade relationship is large and growing, including considerable benefits for the City of London. British companies are making a major contribution to the Russian economy. For all those reasons we need a relationship based on trust and mutual respect.
	On 28 May, the Russian authorities were presented with a formal request for the extradition to the UK of Andrey Lugovoy so that he might stand trial for the murder of Alexander Litvinenko in a British court. Let me remind the House of the relevant procedures. The Crown Prosecution Service is an independent prosecuting authority. Once the Metropolitan police have referred a case to the Crown Prosecution Service, it is then for the CPS to consider whether there is sufficient evidence to bring charges, and that it is in the public interest to do so. The CPS concluded that Mr. Lugovoy did indeed have a case to answer, and sought the assistance of the Home Office in requesting his extradition from Russia. On 6 July, the Russian deputy prosecutor general sent an official letter to the Home Secretary refusing to extradite Mr. Lugovoy. On 10 July, the Director of Public Prosecutions announced that, despite the Russian response, he continues to press for a trial of Mr. Lugovoy in England. Given the seriousness of the crime and our ambitions for our bilateral relationship with Russia, Russia's reply to the CPS's extradition request is extremely disappointing. It suggests that the Russian Government have failed to register either how seriously we treat this case or the seriousness of the issues involved, despite lobbying at the highest level and clear explanations of our need for a satisfactory response.
	It is worth reiterating why this matters. The Metropolitan police have assembled a significant body of evidence against Andrey Lugovoy. I can confirm the following. It is alleged that this grave crime took place in London in November 2006 when Mr. Lugovoy poisoned Mr. Litvinenko by administering a lethal dose of polonium-210, a highly radioactive substance. It is part of the prosecution case that on the afternoon of 1 November, Mr. Litvinenko drank tea which he had poured, after an invitation from Mr. Lugovoy, from a teapot which was later found to be heavily contaminated with polonium-210. There is also evidence that shows a trail of polonium-210 on aircraft in which Mr. Lugovoy travelled to and from London. On 23 November, Mr. Litvinenko died in a London hospital of an acute radiation injury. The facts are therefore that a UK citizen has suffered a horrifying and lingering death; his murder put hundreds of others, residents and visitors, at risk of radiation contamination; and the UK Government have a wider duty to ensure the safety of the large Russian community living in the UK.
	The deputy prosecutor general's letter says that the Russian constitution currently bars extradition. The Russian authorities have given no indication of a willingness to work with us to address this question. The situation is not unique. For example, other countries have recently amended their constitutions to give effect to the European arrest warrant. Indeed, Russia wants the EU and the UK to open their borders to free movement of people, goods and services as part of an intensification of relations. This needs to be matched by an equal Russian commitment to cross-border judicial co-operation.
	Since Mr. Litvinenko's death, the Government's key priority has been to ensure the integrity of the legal process in order to secure justice for Mr. Litvinenko. The Director of Public Prosecutions made it clear that the allegations against Mr. Lugovoy refer to a crime against a British citizen in London. The appropriate venue for the trial is therefore London. Moreover, both the UN and the EU have reported their concern that the law in Russia is applied selectively. There would therefore be grounds for a legal challenge against the Government over any attempt to accept a trial in Russia.
	Given the importance of this issue and Russia's failure to co-operate to find a solution, we need an appropriate response. Our aims are clear: first, to advance our judicial process; secondly, to bring home to the Russian Government the consequences of their failure to co-operate; and thirdly, to emphasise our commitment to promoting the safety of British citizens and visitors. I have therefore agreed with colleagues across Government the following steps. First, we will expel four diplomats from the Russian embassy in London. Secondly, we shall review the extent of our co-operation with Russia on a range of issues; as an initial step, we have suspended visa facilitation negotiations with Russia and made other changes to visa practice. Thirdly, international agreements mean that Mr. Lugovoy could be extradited to the UK if he travelled abroad. Fourthly, we are grateful for the strong support that we have received from EU partners and close allies, including through the EU presidency statement on 1 June. We will discuss with partners the need for future EU-Russia engagement to take our concerns on this case into account.
	The foundation of an effective international partnership is a set of shared values. The measures that I am announcing are intended to uphold key individual rights and vital principles of independent judicial process. On that basis, we will continue to work with the Government of Russia for mutual benefit. I will keep Parliament informed of developments as appropriate.

William Hague: I welcome the Foreign Secretary's statement, and I say at the outset that the Opposition support the tone and substance of the Government's response to Russia's refusal to extradite Andrey Lugovoy. As the Foreign Secretary said, the grounds for requesting Mr. Lugovoy's extradition are clear: he is accused of murdering a British citizen, Alexander Litvinenko, here in London, by poisoning him with radioactive material in an horrific and calculating manner that caused incalculable suffering to the victim and grievous danger to the British public. Across British politics, we are united in regarding this matter with the utmost seriousness. In such circumstances, we have the right to expect co-operation from our international partners, and Russia's failure to extradite Mr. Lugovoy in these exceptional circumstances will only damage its reputation in the world.
	I should be grateful if the Secretary of State would clarify the following points. Both Russia and the UK are parties to the 1957 European convention on extradition, and signed a memorandum of understanding on co-operation in the legal field in February last year, which included an undertaking to
	"co-operate in the sphere of extradition and in other issues of mutual legal assistance."
	Can he explain what force those agreements have, if any, and have the Government referred to them in seeking Mr Lugovoy's extradition?
	The Foreign Secretary described the risk to Mr Lugovoy of facing extradition to the UK if he travels to third countries. Can he confirm that the Government will actively seek assurances from other countries that they will arrest Mr. Lugovoy if he enters their territory? In a recent interview President Putin stated that
	"the request had no substance"—
	that is, the request for extradition—because Britain did not provide the materials documenting the grounds on which he should be extradited. What specific additional information did the Russian side request, which it claims not to have received? Additionally, what counter-proposals have the Russian Government put forward, and what view have the UK Government taken of those proposals? Are the Government considering any other options, such as a trial in a third country?
	With regard to the expulsion of the four Russian diplomats, will the Foreign Secretary clarify the seniority of the diplomats in question, and whether Russia has indicated that it will take countermeasures? He also referred to changes to visa practice. Can he indicate what changes are envisaged? Does he agree that the issue must not be simply allowed to fade? In that respect, is it not vital that we seek the utmost support from our allies and friendly nations in reinforcing the message that Russia must abide by international rules if it is to receive the assistance and co-operation it hopes for on other issues?
	We welcome the news that the Government have received strong support for their stance from European Union partners and close allies. Has the Secretary of State received any indications that that support will result in concrete measures being taken by our allies to reinforce our position, and what measures are the Government seeking from them?
	In its approach to international co-operation, should Russia not be mindful of the fact that it has need of the friendship and support of Britain and the EU in its aspirations to join the World Trade Organisation, its pursuit of investment in Russian oil and gas fields and its desire to purchase foreign assets? In the long term, we—like the Government—hope to see Russia maintain its status as a key international partner for the UK and we hope for improved relations, as the Foreign Secretary said, so that we can work together on the pressing issues of nuclear proliferation, middle east peace, Kosovo and Iran. Is it not clear, however, that such improved relations are going to require a more positive and co-operative approach than we have seen from Moscow in recent weeks? However much we may hope for them, an appalling crime of this nature and gravity cannot simply be overlooked.

David Miliband: First of all, let me say that sometimes, across this Dispatch Box, spokesmen for different parties make commitments to work together in the national interest that are taken with a pinch of salt. However, on a previous occasion, the right hon. Gentleman said that he wanted to work with the Government on interests of national interest where there could be a bipartisan approach, and today he has demonstrated that he is a man of his word in that area. His support for the Government's approach is very significant because it sends the signal that the measures we are announcing today have support across the political spectrum in the United Kingdom. I look forward to the response of the hon. Member for Berwickshire, Roxburgh and Selkirk (Mr. Moore), who speaks for the Liberal Democrats. I hope that we can say at the end of our discussion of the statement that the measures have the support of the United Kingdom, not just the United Kingdom Government.
	Let me go through the points raised by the right hon. Member for Richmond, Yorks (Mr. Hague). We perceived it as a positive step that the Russian Government wanted to sign the memorandum of understanding. However, that memorandum is an exchange of information about the extradition practices in different countries, not a legally binding instrument. I am disappointed that it does not transpire that the Russian desire to be party to it is reflected in the case that we are considering.
	Secondly, the right hon. Gentleman asked about active assurances that had been sought from the Russian Government, especially in respect of the response from the deputy prosecutor general. He did not ask for more evidence, and I assure the right hon. Gentleman that substantial and sufficient information has been sent to the Russian authorities to make it clear that there is a case to answer. That is the responsibility of the Crown Prosecution Service.
	The right hon. Gentleman mentioned trial in a third country, which will doubtless be raised in the next few hours. The bar that the Russians use to justify failure to extradite to this country applies equally to another country. Either there is or there is not a constitutional bar.
	The right hon. Gentleman asked about the seniority of the diplomats who are being expelled. We have chosen to expel four particular diplomats in order to send a clear and proportionate signal to the Russian Government about the seriousness of the case. He also asked about visa practice and it may help if I explain the difference between the visa practice and the visa facilitation that I mentioned in the statement. Visa practice refers to officials from the Russian Government and visa facilitation refers to an attempt or desire on our part to speed up visa processes outside diplomatic circles. The latter cannot go ahead in the way in which we had hoped.
	I am grateful for the right hon. Gentleman's support for the work of our international partners. I have obviously discussed the matter with G7 and EU partners, and we will take it further at the General Affairs Council next week.
	The right hon. Gentleman rightly concluded that Russia and the United Kingdom have strong shared interests and that it is strongly in Russia's interest to have a positive and co-operative relationship with the UK. That is our desire. Russia has every right to be a full and respected partner of the international community, but with that right go responsibilities. Today is about asserting that those responsibilities as well as those rights should be exercised properly.

Mike Gapes: May I also support the measured approach of the Foreign Secretary and the shadow Foreign Secretary? Given that the recent events follow harassment of our ambassador in Moscow and difficulties for the British Council in Russia, does the Foreign Secretary believe that there is a wider problem, which relates to not only Mr. Lugovoy but a growing difficulty with Russia accepting that it must abide by international norms of behaviour towards this country and other countries? In that context, I welcome my right hon. Friend's remarks about European Union solidarity and remind him and the House that other EU countries, especially some of the smaller ones, have also experienced difficulties with Russia in recent weeks.

David Miliband: It is important that, in the discussion on the statement, I stick closely to the case in hand, which is that of Mr. Lugovoy and the integrity of our judicial process. However, my hon. Friend makes a good point about an issue that we could debate at greater length on another occasion: the way in which we, as part of the international community, help achieve a proper relationship between Russia and other countries, which has to be based on mutual respect. We are clear that Russia should have a respected place in the international community, but that it must exercise the responsibilities that go with membership of that community. I look forward to discussing that with my hon. Friend and the Foreign Affairs Committee in due course.

Michael Moore: I also welcome the Foreign Secretary's statement, but like everybody else I regret the circumstances that require him to make it. The murder of Alexander Litvinenko was a despicable crime, compounded by the perpetrator's reckless disregard for the safety of countless others in this country and elsewhere. We agree that the lack of co-operation from the Russian authorities has forced the Government to act and we support the Foreign Secretary in all the measures that he has proposed.
	May I draw the Foreign Secretary's thoughts back to one of the points that the Chairman of the Foreign Affairs Committee just made, about the harassment of British diplomats and employees of the British Council? Does he still have concerns about that wider difficult pattern of behaviour by the Russian authorities? On the broader issue of British and European links with Russia, does he agree that, now more than ever, Europe must work through a united approach, developing a constructive relationship where possible, but also seeking to restrain Russia when it proves difficult on issues such as Kosovo?

David Miliband: I am grateful for the hon. Gentleman's support. It is significant that we should have cross-party consensus on the issue. I am also grateful to him for picking me up on not addressing properly the question that the Chairman of the Foreign Affairs Committee asked about the harassment of diplomats and representatives of the British Council. Any such acts are extremely serious and completely contrary to the way in which civilised behaviour should be taken forward. That is obviously the case for diplomats, but it is also the case for the hard-working staff of the British Council, whether they be British citizens or locally hired citizens.
	It may help the House if I report that the overwhelming majority of press and media comment in Russia on the work of the British Council is extremely positive. The scurrilous rumours that are put round about the council are completely without foundation. The operational work of the British Council—its priorities and its way of working—is set independently. It would be reprehensible for there to be any suggestion that its important work should be subject to any harassment or other interference.
	Finally, in respect of the European Union, I shall be discussing the issue next week. We look forward to taking the issues under discussion forward with our European partners, including that of the wider bilateral relationship. My hon. Friend the Member for Ilford, South (Mike Gapes) is right that a range of countries want the issue on the agenda of European meetings, and we shall certainly contribute fully to that.

David Winnick: Is it not apparent that the more the Russians take the attitude that my right hon. Friend has mentioned, the more the suspicion grows that they have something to hide? In view of the circumstances, is it not also clear that if the Government had not taken this action, it would seem that we were not taking the murder of a United Kingdom citizen seriously? In all those circumstances, I congratulate my right hon. Friend on what is being done.

David Miliband: I am grateful to my hon. Friend for his strong support. The heinous crime of murder requires justice, and I believe that the response that we have set out today is the right one. It is a proportionate response; who it is aimed at is clear, as are the points it is trying to make and the aims that it is trying to secure. I am grateful for his support.

Douglas Hogg: The Foreign Secretary has told the House that the deputy prosecutor general's letter says that the Russian constitution currently bars extradition. I am sure that the right hon. Gentleman has taken advice from our embassy in Moscow. Is the deputy prosecutor general correct when he says that the constitution bars extradition? If it does, what is the process of amendment?

David Miliband: We are not entering into a legal argument with the Russian Government about the current status of the Russian constitution; what we are seeking is their co-operation in overcoming this obstacle. As I said in my statement, other countries, including Germany, have recently made amendments to their constitutions precisely to address the issues raised by the European arrest warrant. As I also said in my statement, the Russian desire is for greater interaction with the European Union and the UK. That must be on the basis of responsibilities as well as rights being properly exercised. It is on that basis that we have asked for co-operation from the Russian Government in addressing the issue. It is that co-operation that we have failed to secure.

Mark Hendrick: Given the recent treatment of British gas and oil interests in Russia and the way in which gas and oil have been used for political leverage with some of Russia's neighbours, and in the light of the Litvinenko case and the points raised by my hon. Friend the Member for Ilford, South (Mike Gapes), is the Foreign Secretary confident that Russia is still a country with which we can do business?

David Miliband: It is important that we continue to do business with Russia, according to clear international rules. I have spoken to the director general of the CBI today, and tomorrow I shall meet representatives of some of the major companies that do business in and with Russia. It is important that that trade should continue, because our economic relations are important. It is also the case, however, that the business that we do and the economic links that we have should be founded on clear rules, which should be respected by all sides.

Mark Field: I very much agree with the Foreign Secretary's judgment in making this statement today. There are broader issues involved, however, and I expect that they will be considered in the months and years to come. In particular, there is the question of allowing individuals such as Mr. Litvinenko into the UK and giving him a passport in double quick time. This is a grave concern, not least because of the great danger that was posed to many of my constituents in central London where he resided, as the hon. Member for Berwickshire, Roxburgh and Selkirk (Mr. Moore) pointed out. The Foreign Secretary and I both have forefathers who have come to this country from abroad and decided to make their lives here and abide by the laws. Will he ensure that, when looking at people coming into this country from Russia or elsewhere, we do not allow anyone to come here who will agitate against other sovereign states?

David Miliband: The short answer to the hon. Gentleman's question is yes. We must ensure that people who come here have an independently assessed legal right to be here, and that they abide by the laws of this country while they are here. When they are British citizens, they will have rights under the 1957 European convention, which will be properly exercised. Those rights are clear, and they are not a licence to call for the overthrow of Governments, as the hon. Gentleman pointed out. Any such suggestions are investigated not by me but by the independent Crown Prosecution Service, and that will be the case for any citizen of this country, whether they are of long standing or have recently arrived.

Chris Bryant: I wholeheartedly congratulate the Foreign Secretary on the approach that he has adopted today. A robust attitude is essential. We have only to read the Foreign Office's own report on human rights abuses in Russia last year to see a catalogue including the suppression of the right of peaceful association and of non-governmental organisations and the systematic use of torture and abuse in the prison system throughout the Russian Federation. Does my right hon. Friend also worry about Russia's recent decision to suspend its membership of the treaty on European conventional forces? Is not that a dangerous step to take?

David Miliband: My hon. Friend raises an important point. The treaty on conventional forces in Europe is the cornerstone of European security, and the announcement by the Russian President that he would suspend—although not withdraw—Russian engagement with that treaty is very serious. As I said in answer to an earlier question, I am addressing the Lugovoy case today, but there is a common theme here. That theme is about the rights and responsibilities that go with membership of the international community, whether in respect of legal questions or of military questions to do with conventional forces, and it is important that the Government of Russia, and every other Government, proceed on the basis of clear mutual respect of the rights of other countries as well as of their own rights and responsibilities.

Lynne Featherstone: Mr. Litvinenko was my constituent. When I asked the former Home Secretary to pursue this matter without fear or favour, he said that he would do so. I regard the Secretary of State's statement today as following up on that promise to a great extent, and I welcome his remarks. I hope that Russia will see the benefit of these relationships. However, there are many questions that I do not have time to put to the Foreign Secretary today, and I wonder whether he would agree to meet me and Mrs. Litvinenko so that we can ask him those questions.

David Miliband: I am keen to respond positively to the hon. Lady's questions. If they are technical, I will arrange for them to be answered clearly; and if the hon. Lady and Mrs. Litvinenko would like to meet me or my colleague the Minister for Europe, I am sure that we can arrange a meeting with one or other of us.

Andrew MacKinlay: May I make it clear that I, too, deprecate the murder and recognise the gravity of the situation caused to Londoners by that murder? The issue before the House today, however, is whether the response is proportionate and will have the desired effect. That is where my mood differs from that of the House; I am not sure that the response will be effective. Presumably, the Secretary of State will make a statement when he reinstates the four diplomats whom he is expelling—because that will happen; it happens by creep. Everyone knows that.
	Secondly, I am deeply concerned about the House's mood, which seems to be anti-Russian, regardless of the fact that we sometimes treat the Russians very arrogantly, and that they have people who they perceive should be facing their courts in London, protected by our system. I believe that we should pause and reflect on whether our relations are spiralling down very badly. A few moments ago, my hon. Friend the Member for Rhondda (Chris Bryant) referred to Russia's stalling on the conventional armed forces in Europe treaty and there is also the attitude to Kosovo. I think that we are on a dangerous course— [Interruption.]

Mr. Speaker: Order. I think that we are on a course of asking too many supplementary questions.

Andrew MacKinlay: It is different, though, from the rest!

David Miliband: No one could accuse my hon. Friend of not being different. Let me say a couple of things to him. We have thought very carefully about this, we have not rushed to judgment and we have considered all aspects of our interests, but I believe that the response that I have announced today is proportionate. Secondly, it is not about being anti-Russian; this is not an anti-Russian statement. The clear desire of the UK Government and people of the UK is to have a close, co-operative and fruitful relationship with the people and Government of Russia, but I am sure that my hon. Friend would agree that that relationship must be based on clear rules. Finally, my hon. Friend talked about how "our system" was "protecting" certain individuals, but we have laws of the land, which are guaranteed by independent authorities. Anyone who flouts those laws of the land goes contrary to those independent authorities and will be taken up on that basis.

Malcolm Rifkind: I congratulate the right hon. Gentleman on his appointment as Foreign Secretary and endorse his proportionate response to the current crisis. The Russian Government have said that their constitution prevents them from extraditing Lugovoy, but they have offered a trial in Russia in a Russian court. The right hon. Gentleman might like to consider calling that bluff, but not in the way that the Russians are proposing. He has said correctly that having a trial in a third country would equally come up against the current Russian constitution, but that problem would not arise if a British court were permitted to hold a trial in Russia under British law. We have the precedent of the Lockerbie case in The Hague, where exactly those principles were applied. If the right hon. Gentleman and the Russian Government were interested in finding a way forward, that option should at least be considered.

David Miliband: I am grateful to the right hon. and learned Gentleman, who speaks with the authority of a former holder of my office, for his kind words on my appointment. I think he will find that the option he proposes—ingenious though it is—is not open to us, as it does not fall within the sort of creative work that we have been seeking with the Government of Russia. He will also recognise that, as I said in my statement, a proposal to conduct a trial in Russia could open our Government to legal challenge from our own citizens. Under whomever's auspices the trial is carried out, that point carries a large degree of force.

Denis MacShane: The Foreign Secretary's calm and measured words should not hide the very tough and bold decision that he has taken. This is the first fight back by any European Foreign Minister against Russia's bullying. When you and I were young men, Mr. Speaker, it was British communists who went to the Kremlin to kneel in front of their master; now it is British capitalists who are already on the airwaves saying, "Don't cause trouble; don't cause trouble". But it is the Russians who are causing the trouble—whether it be on this particular issue or in respect of the British Council, the harassment of our ambassador, Kosovo or trade—and I believe that the whole of Europe will say thank you because at long last a British Foreign Secretary is taking a clear line. Yes, it is a difficult line and, in the light of what my hon. Friend the Member for Thurrock (Andrew Mackinlay) said, a controversial line, but it is better to start as we mean to go on, and this is a very fine start indeed by someone who will prove to be a fine Foreign Secretary.

David Miliband: I am extremely grateful to my right hon. Friend. I look forward to his many contributions to our debates. As always, he speaks with an acute sense of history and an acute sense of the need for all European countries to recognise strong shared interests in this area. It would be wrong to be anything other than firm. No one is seeking to be macho; it is about being firm, clear and proportionate, and that is what we are seeking to do.

Angus Robertson: I should let the Secretary of State know that, in relation to his appeal for a spirit of non-partisanship, the position on extradition is shared by governing parties from Scotland, Wales and Northern Ireland—by the Scottish National party, Plaid Cymru and the Democratic Unionist party. Does he agree that normal countries with normal relations have appropriate extradition proceedings? Although it is not possible to make such arrangements at present, it must be a medium to long-term aim to do so. In relation to the question of European Union co-operation, can he confirm that were Mr. Lugovoy to travel to any European Union country, he would be subject to a European arrest warrant?

David Miliband: I do not want to ruin the hon. Gentleman's career by saying that he has made a good point, but he has. The basic rules of the game that he describes are in the interests of all countries. Given the way in which the Government of Russia have sought to intensify their relations, not just bilaterally with us but across the whole of the EU, I believe that they recognise that. The hon. Gentleman is correct in respect of the position of Mr. Lugovoy, in that if he leaves Russia he will be subject to arrest.

Quentin Davies: Diplomacy sometimes requires robustness; it certainly did on this occasion, and there will be widespread public support for the measures announced by the Foreign Secretary. In announcing expulsions to the Russian ambassador, I hope that the Foreign Secretary says that if the Russian Government are minded to retaliate, we shall not be deflected, but we shall continue to see the matter through if necessary. Because the murder in question came after a series of nasty murders in Russia of political dissidents and brave journalists who have criticised the Putin Government, such as Anna Politkovskaya, and because of the difficulties of obtaining rare radioactive isotopes and the skills required to transport them, many people must be worried that Russian state agencies might have played a part in the murder. If any such evidence comes to light—that would be serious, and I am not suggesting that there is necessarily such evidence—does he agree that even more robust measures will be required?

David Miliband: As I have said on two occasions already, I am determined today to stick to the terms of the CPS requirement for extradition. Those apply to Mr. Lugovoy and only to Mr. Lugovoy. Obviously, any other evidence that came to light would have to be considered by the CPS, but that would be a matter for it, not me.

Patrick Cormack: While I recognise and agree with the robust tones of the Foreign Secretary's statement, I do not want any more than he does to see the outbreak of another cold war. Can he tell the House how many meetings he had with the Russian ambassador here on this subject, and how many conversations he had with his Russian counterpart?

David Miliband: I have spoken twice to my Russian counterpart during my two and a half weeks in office, including earlier today, because I thought it right and courteous to do so before I came to the House. As I said in my statement, the Russian ambassador met the permanent under-secretary at the Foreign Office on 22 May, and has met him again today. The judicial channels have also been extensively used. If, when I get back to the office, there is further information in relation to the hon. Gentleman's question that I have not given him, I shall write to him with further details.

Mark Pritchard: The death of Alexander Litvinenko was tragic and sinister in equal measure, and his killers deserve to be brought to justice, but does the Foreign Secretary believe that anything he has said today will cause the Russians to amend their constitution and extradite those accused of Litvinenko's murder? If he does not believe there will be any change, why did he make his statement?

David Miliband: Obviously I believe that today's statement will help to advance the three aims that I set out in it; otherwise I would not have made it. I am sorry that the hon. Gentleman could not follow that clearly.
	I think it important not just to send a signal, which we have done, but to take practical, concrete measures, which we have also done. Those measures are designed to make a particular point to particular people, and I believe that they will do so. They will also lead to further international engagement, which we will undertake in a serious way. However, as a number of Members have pointed out today, there is a wider relationship which needs to be founded on a clear basis of mutual respect. That applies in each case, and also in relation to the broader picture. Today's announcement was designed to advance that relationship, and I believe it is our best hope of doing so.

Mark Durkan: I join others in welcoming my right hon. Friend's statement. We all hope it will have the effects that he has said are intended to flow from it. I welcome the robust terms in which he said that the heinous crime of murder must be pursued, and that that pursuit could not be set aside for any other ulterior political consideration, but how does he hope to respond to the Russian authorities when they allege hypocrisy on the part of the United Kingdom Government, and in the light of the United Kingdom Government's attitude to the murder of Pat Finucane and others?

David Miliband: Tempting as it is to wander into the terrain offered by the hon. Gentleman, the temptation is not great enough for me to do so. I am sorry that he has not been able to view this case, and the rights and wrongs of it, in and of itself. He indicated support for the Government's position in this instance, and I am grateful for that. I believe that we had no option but to do what we have done, and I hope we can proceed on that basis.

Nigel Evans: Like many other Members here, I sit on the Council of Europe with Russian members of the Duma. They understand the rule of law, and it is therefore disappointing that the Russian Government do not understand the rule of law that the Foreign Secretary has presented to them. I fully support his announcement, although it is sad that it had to be made.
	Last week I was telephoned by a Russian journalist about this issue. I said that we were heading towards a crisis over procedures that were not being followed by Russia. He said he believed that there was a tit for tat: that the Russians had called for the extradition of people from this country and we had refused, and that they failed to see the distinction involved in this particular case. Will the Foreign Secretary comment on that?

David Miliband: There is no doubt that there has been a serious attempt to muddy the waters, but I am afraid the parallel that people have sought to draw does not apply. The protection afforded to citizens here under the European convention on human rights becomes relevant because of people's concerns about the situation in Russia, not because of their concerns about the situation here. This case is also about the situation in Russia, and about the Russian authorities' determination to co-operate with the United Kingdom Government to bring to book someone who is alleged to have committed a very serious crime.
	While I hope the hon. Gentleman will phone his Russian friend back and explain to him that it is in the gift of the Russian authorities to ensure that in all cases there are proper procedures and proper protections, any citizen of this country who is accused of a serious crime in another country can be extradited as long as that does not violate his or her rights, and that is the basis on which we proceed.

Julian Lewis: Has the Foreign Secretary received any expert advice on the likelihood of a private citizen having been able to obtain a lethal quantity of polonium-210 from anything other than a Government-controlled nuclear agency, and has he suggested to the Russian Government that if they go down the old cold war route of tit-for-tat expulsions he has something else up his sleeve? I do not, of course, expect him to specify what.

David Miliband: I hope that the hon. Gentleman will understand my reasons for wishing merely to refer him to the content of my statement. It would not be appropriate to go beyond that. We decided what action to take after having looked at the issues in the round. I hope that he accepts that answer.

Points of Order

Jim Devine: On a point of order, Mr. Speaker. I seek your guidance on the privilege of Members in this place. During business questions last Thursday, I discussed Greenbelt, a factoring company, and in particular its bullying behaviour. It has sent threatening letters to me and my constituent, Paula Hoogerbrugge. Company representatives also contacted her employers. After business questions, its lawyers copied me into a letter that it sent to you, Mr. Speaker. I believe that that is a part of its bullying strategy to silence me, and I would be grateful if you would confirm that I have the right to raise issues that directly affect my constituents in this place and beyond.

Mr. Speaker: I have not yet received any such letter, and the hon. Gentleman will understand that I would not discuss on the Floor of the House any letters sent to or by me. On privileges, I have always said after a general election and at the opening of a new Session that Members have privilege not outwith but in this Chamber during parliamentary proceedings, but that privilege should always be exercised wisely and consideration should be given to those being criticised.

Crispin Blunt: On a point of order, Mr. Speaker. In respect of the Government's housing policy, the Prime Minister said last Wednesday:
	"The Minister for Housing will publish further details next week in a Green Paper to this House."—[ Official Report, 11 July 2007; Vol. 462, c. 1450.]
	The Leader of the House confirmed that on Thursday, saying:
	"As my right hon. Friend the Prime Minister said yesterday, we also expect an oral statement next week on the Government's housing policy."—[ Official Report, 12 July 2007; Vol. 462, c. 1609.]
	Mr. Riddell, an extremely well connected journalist, wrote this morning in  The Times:
	"The word spread quickly in Whitehall on Friday. All was not well with the Green Paper on plans for a big expansion of affordable housing, the flagship of Gordon Brown's new legislative programme...So the planned announcement was being put back from this week, the 18th, until the 23rd or 24th, contrary to what Mr. Brown announced last Wednesday."
	Have you, Mr. Speaker, received any indication that the housing statement will not be made this week?

Mr. Speaker: I have received no such information, and the hon. Gentleman must know that the matters he raises are Government matters, and therefore that they are not for the Chair. He can, of course, ask parliamentary questions, both oral and written.

Opposition Day
	 — 
	[17th allotted day]

Alleged Overseas Corruption

Mr. Speaker: I inform the House that I have selected the amendment in the name of the Prime Minister.

Vincent Cable: I beg to move,
	That this House notes the Serious Fraud Office's (SFO) ongoing investigation into the sale by BAE Systems plc of a military air traffic control system to Tanzania and into payments made to third parties in South Africa and other arms-related inquiries; notes with concern the consequences for the role of the Attorney General of the decision to terminate the SFO investigation into BAE Systems plc and Saudi Arabia and its implications for parliamentary accountability; believes serious damage has been done to the reputation of British business and to the credibility of the Government's campaign against corruption in the developing world; urges the Government to cooperate fully with the United States Department of Justice inquiry into corruption allegations concerning BAE Systems plc and with other international organisations; and calls for increased parliamentary accountability and transparency concerning the Government's dealings with the government of the Kingdom of Saudi Arabia.
	I am delighted to be able to introduce another debate on the investigation of alleged corruption overseas. I have previously introduced two of them—one on 7 February, which was also an Opposition Day debate, and an Adjournment debate on 1 May. Let me first explain and justify why we wish to return to the issue. It is important, as it goes to the heart of arguments about an ethical foreign policy, the rule of law and open government.
	Since we last debated these issues, there have been several important developments that we must take account of and discuss. First, there are continuing arguments about the application of the law, which have been clarified by some of the discussions in the Constitutional Affairs Committee, which my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) chairs. The BBC and  The  Guardian have made revelations or allegations about the wider context of the al-Yamamah project.

Gerald Howarth: The hon. Gentleman mentioned  The Guardian, with which his party is in a conspiracy.  [Interruption.] Has he the faintest idea of the sort of damage that he and his party are doing to one of the most successful industries in the United Kingdom? Britain's export defence industry employs around 76,000 people. Is he aware that 80 per cent. of those exports emanate from the air sector, and that BAE Systems is the most successful company? His party's motion today is sending a signal to our competitors and commercial adversaries around the world that it does not give a damn for that industry's employees in our country, because we shall ensure that—

Mr. Speaker: Order. Interventions should be brief. The hon. Gentleman is making a speech.

Vincent Cable: As my colleagues behind me have just said, I wish that we were in conspiracy with  The Guardian. I always tend to regard it as a rather pro-Government newspaper. None the less, that is not the central point.
	I want to clarify the fact that we have no objection to British companies selling arms to a friendly country provided that it is done legally, is not subsidised, is on a commercial basis, and satisfies the export control regime's proper tests. If the awaited contracts satisfy those tests, we will have no quarrel with them.

David Taylor: The hon. Gentleman refers to the Export Control Organisation by implication. Does he agree that for the Defence Export Services Organisation to exist in parallel with it sends entirely the wrong message about arms exports, and that we should tighten up the system to ensure that arms are not sent to unstable regimes, war zones or countries that routinely abuse human rights? Why does he not refer to that in the broader context of his comments?

Vincent Cable: I shall refer to DESO. Certainly, the export control regime needs to be tightened up, as I said from the Front Bench when the matter went through Parliament, but it is as it is. I think the hon. Gentleman's specific point relates to DESO, and the Chief Secretary to the Treasury made the interesting observation a few days ago that it is an anachronistic body that should be closed. I shall be interested to hear during the debate how the Government respond to that.

Nigel Evans: Does the hon. Gentleman understand the sort of damage that he is doing to the industry? I have a BAE Systems plant at Samlesbury in my constituency which employs thousands of people in highly paid and skilled jobs. The only people who will get any joy from the Liberal Democrats' motion today are our competitors.

Vincent Cable: I have already given the answer to that question to the hon. Member for Aldershot (Mr. Howarth). The hon. Member for Ribble Valley (Mr. Evans) ascribes to me a power of argument that is flattering. There are questions that must be asked, and I am sure that he would not want us to be uncritical of the arms exports regime, to which we shall refer.
	We are updating the arguments, partly to allow for the legal issues, partly to allow for the allegations concerning the al-Yamamah project as a whole, partly to bring up to date the Organisation for Economic Co-operation and Development inquiry's approach to the question, and partly to bring into the discussion the highly relevant and worrying developments in relation to the United States, which only this weekend insisted on reopening the case, and on British collaboration with that. It would probably be useful to start with an overall approach. When we introduced the debate six months ago, the key issue was the rule of law: whether it was being applied and what the law on bribery and corruption in overseas business meant. We have argued those points, and they continue to be relevant in many respects.
	The underlying theme that I wish to develop concerns the broad question of parliamentary accountability and how the new thinking that the Prime Minister has introduced, which is welcome, about greater openness in government and, specifically, greater openness about security matters should apply in this area. The key argument, to which we keep returning in the debate about the Saudi project and al-Yamamah, concerns national security interests. That argument was invoked as the reason for stopping the Serious Fraud Office inquiry, for limiting the information given to the OECD and for not proceeding with or publishing the National Audit Office investigation. It is the argument that is used for not answering most of our parliamentary questions on the subject.
	Let me make it clear that just as I and my colleagues respect perfectly open, honest arms exports, we fully understand and respect arguments about national security. On a personal level, as a 30-year-old civil servant I worked in the Foreign Office, and the division that I headed included, among other things, quite an important communist country at the height of the cold war. I was fully indoctrinated in the intelligence process and the Official Secrets Act and honoured its obligations. I have always been perhaps excessively deferential to arguments based on national security. However, some fundamental questions about the workings of the intelligence and security arguments need to continue to be probed, because the Government have used them in unsatisfactory ways.
	I have three points on this issue. The first concerns what could be called revelations, but are in fact points from the Government's evidence that was submitted to a recent High Court hearing brought by The Corner House and the Campaign Against Arms Trade. The Government set out—much more specifically and helpfully than when the Attorney-General and the Solicitor-General made their statements to Parliament—how the director of the Serious Fraud Office came to the conclusion that he should not proceed on national security grounds. That showed, in quite an extraordinary way, his reluctance to come to that conclusion.
	There were three steps. In December 2005, there was a so-called Shawcross exercise by other Departments, which involved, I think, the Prime Minister. The director of the Serious Fraud Office and the Attorney-General rejected the recommendation that the director of the Serious Fraud Office cease to proceed with the inquiry. On 30 September—I do not think that this has been stated to Parliament, but it was stated to the court—a letter from the Cabinet Secretary to the Attorney-General and the head of the Serious Fraud Office explained that our counter-terrorist operations might be affected adversely if he proceeded with his inquiry. At that point, remarkably, not only the head of the Serious Fraud Office but the Attorney-General rejected the advice. On 30 November, the head of the Serious Fraud Office was brought together with the British ambassador to Saudi Arabia and phrases such as "Lives were at risk" were put to him. He did not immediately cease the inquiry; it required three meetings with senior officials and the ambassador before he finally agreed, on 13 December, to do so.
	That is taken from the account that the Government have given of the chronology—I am not manufacturing any of it.  [Interruption.] I have thought carefully about it, and it is all set out here in print. I am surprised that the Minister finds this so difficult; I am not referring to press reports.

Kim Howells: I do not find the concept difficult to understand. I said from a sedentary position, "He thought very carefully about it." If it took the director of the Serious Fraud Office three meetings, one would have thought that the hon. Gentleman would have been glad that it was considered seriously and over a length of time.

Vincent Cable: I am glad. It reflects well on the director of the Serious Fraud Office that he took his duties so seriously. It is clear that either he thought that the public interest in proceeding was compelling, and sufficient that he could initially ignore advice about counter-terrorism, or he found the arguments about counter-terrorism unpersuasive.
	Subsequently, the director of the SFO said in evidence to the Select Committee on Constitutional Affairs, chaired by my right hon. Friend the Member for Berwick-upon-Tweed, that the one item that persuaded him to change his mind was a memorandum from the Prime Minister, to which was attached a more detailed memorandum from Sir Richard Mottram, who is a security adviser to the Government. He may not have been aware at the time, although it has since been pointed out, that that same civil servant, who I am sure is a man of enormous integrity, was, 20 years previously, private secretary to Michael Heseltine, who set up the meetings that led to the al-Yamamah agreement.Whatever Sir Richard's competence and integrity, he was hardly disinterested.
	A problem that has occurred throughout this issue is that of senior people in government—another is the head of the National Audit Office, who was also an MOD official—who, for all their high levels of competence, professionalism and integrity, do not have a disinterested position. Resurrecting my O-level Latin, I have to ask, "Quis custodiet ipsos custodes?" Who will guard the guards? I think that that is highly relevant to the present context. That is the first question that I wish to pose about the intelligence argument.
	The second problem is that the argument that the counter-intelligence issues should deter an investigation sounded to us inherently implausible even six months ago because the relationship with Saudi Arabia is a two-way one, underpinned by a memorandum of understanding—I do not think that that had been made clear before—and is therefore a formal arrangement from which Saudi Arabia benefits as we do. It was unclear why one party to that agreement should imperil a bilaterally mutually advantageous arrangement.
	The assertion that that argument was a compelling one has become even less plausible for two reasons. First, the embarrassment that could have been caused to senior Saudis has become history. Prince Bandar has been named and embarrassed, and all the information about his activities has now been published. If the intention was to protect him from that embarrassment, it is already history. Secondly, and much more serious, is the decision of the United States Department of Justice to intervene and to investigate. One has to ask why on earth the United States, which is leading the war on terror and which has far more reason to be concerned about maintaining its security relationship with Saudi Arabia than we have, should pursue a potentially embarrassing investigation into the relationships between BAE Systems and Saudi princes.

David Borrow: Will the hon. Gentleman elaborate on the independence of the US Department of Justice and its relationship with the US Administration and the extent to which the Administration could directly influence the Department of Justice on that point?

Vincent Cable: That is a very helpful intervention. The head of the Department of Justice is, I believe, a Mr. Gonzales, who is a political appointee of the Bush Administration. If the Bush Administration had any interest in safeguarding their carefully nurtured security relationship with the Saudis, surely that would have manifested itself.
	I am glad that the hon. Gentleman intervened, because he made an extraordinary remark reported in the press this morning. Apparently, following a meeting with Lord Drayson, the Minister responsible for defence export sales, he urged the Government not to co-operate with the Americans in their inquiry. It is absolutely extraordinary to say that we should put at risk our most important bilateral relationship on intelligence and security matters to protect the Saudis from further embarrassment. I can only hope that hon. Gentleman was not speaking for the Minister.

David Borrow: May I clarify? The comment from me in  The Guardian this morning came not from a discussion with the journalist from  The Guardian, but was an interpretation of comments that I made to another journalist from my local newspaper. Those comments were interpreted without my consent and without any discussion between myself and the journalist from  The Guardian, and the interpretation does not reflect the comments I made to the  Lancashire Evening Post.

Vincent Cable: I thank the hon. Gentleman for his clarification, and I hope that he speaks for the Government. I will take it as read that the Government will give their maximum co-operation to our chief ally in this matter.

Mark Hendrick: Has it not crossed the hon. Gentleman's mind that American interest in the subject might be due to the fact that it would have liked the contracts that BAE Systems secured, and that it would do a great deal to destabilise British industry and tens of thousands of jobs across Lancashire?

Vincent Cable: Is the hon. Gentleman seriously suggesting that President Bush and his Administration are putting at risk counter-terrorist operations to placate American companies? I do not know enough about the United States to know how perverted its values are, but he seems to be making an extraordinary case.

Mark Hendrick: I do not think that the issue was a consideration for President Bush, or that intelligence between the United States and Saudi Arabia would have been affected. Obviously, the intention was to get to the bottom of a commercial arrangement, because it is in certain American companies' commercial interests to see BAE Systems struggle.

Vincent Cable: I do not understand the logic of the hon. Gentleman's argument at all. Why on earth should the intelligence arrangements between Britain and Saudi Arabia be compromised, but not those between the United States and Saudi Arabia? That makes absolutely no sense.

Angus Robertson: Does the hon. Gentleman agree that we should not lose all sense of proportion, and that we must remember what the issue should surely be about? Does he not remember the once much-lauded phrase, "an ethical foreign policy"? If we are to have such a policy, and properly regulated arms exports, which my party and I support, surely there must be the highest standards of probity, and surely inquiries should not be stopped at the whim of the Government.

Vincent Cable: That is right, but in a way I am more positive and optimistic than the hon. Gentleman; the new Prime Minister said very clearly that he wants more transparency in government, and a more ethical foreign policy. I hope that he is as good as his word. If he is, this is an opportunity to demonstrate it.

Nigel Evans: I do not know what the Liberal Democrats have against BAE Systems specifically, or military manufacturing generally, because during the general election they threatened to stop the next tranche of Eurofighters if they came to power. Again, that would cost thousands of jobs. What do they have against BAE Systems in my constituency?

Vincent Cable: I have nothing against that company at all, and I welcome its continued commercial activity—providing, of course, that it abides by the law, as we all must.
	Let me move beyond the arguments about intelligence to specific issues that have arisen in the past six months. The first relates to the legal position, and the differing views of the former Attorney-General and the Serious Fraud Office. As I said, those views were brought out by the Select Committee on Constitutional Affairs, chaired by my right hon. Friend the Member for Berwick-upon-Tweed. When the then Attorney-General made his statement to the House of Lords, it was said that the arguments for ceasing the investigation were not simply about national security. He has said that there were severe technical and legal difficulties in bringing any prosecution. Many distinguished people have pitched in and supported that argument, and I seem to remember that they included the hon. Member for Beaconsfield (Mr. Grieve), the Conservative spokesman, who is a distinguished lawyer in his own right. He put on his legal hat, as he put it, and concluded that
	"On the face of it, there can be no prosecution if there was an agreement to give commission payments to certain agents of the Saudi Government, with the full knowledge of the Saudi Government, as part of the overall contractual arrangements."—[ Official Report, 7 February 2007; Vol. 456, c. 884.]
	I am not a lawyer, but there seems to be an element of common sense to the idea that it is rather difficult to apply the law when one of the most senior members of the Government are involved. The problem is that the argument does not seem to have persuaded the head of the Serious Fraud Office, who persists in holding a contrary view. When my right hon. Friend the Member for Berwick-upon-Tweed conducted his inquiry, he specifically said to the head of the SFO that the Attorney-General
	"stated that in his view, as opposed to yours, the ground for ceasing the investigation was that it could not lead to a successful prosecution."
	The head of the SFO, who had had several months in which to reflect, and who had no doubt received legal advice, replied:
	"He certainly took that view. I took a slightly different view. I took the view that I would prefer to continue the investigation, to obtain the evidence, before making a final decision".
	It is important that we understand whether it is the Attorney-General who is right or the head of the Serious Fraud Office, a very senior official, who, unlike many of the other people involved in the argument, has no political axe to grind, so we must take his views seriously. If the Attorney-General, the Government and the Conservative spokesman are right, there are serious implications. The first is that we have a highly defective law governing bribery in overseas countries, which in many cases simply cannot be applied. That raises the question as to why the head of the SFO is spending taxpayers' money pursuing further investigations, which, among other things, include South Africa, where the alleged recipient of money is none other than the vice-president, and where precisely the same argument about principles and agents could be advanced as is being advanced in the case of Saudi Arabia. If the law is defective, do the Government propose to change it? There was nothing in the sketch of the Queen's Speech that indicated that an improvement was coming, but if the Government really believe that the law is inadequate and cannot be applied, do they have any plans to change it.?

David Borrow: Will the hon. Gentleman elaborate on the changes to the law in 2001 and the extent to which that has influenced the debate, the extent to which events took place before and after the change in the law, and whether we are considering matters pre-2001 or post-2001?

Vincent Cable: I have not seen the evidence, so I do not know the answer to that question. I think that most people assume that there is an element of both. Certainly the 2001 legislation was a genuine attempt to incorporate the Organisation for Economic Co-operation and Development convention into British law. The problem that we now seem to have is that it cannot be applied, or certainly cannot be applied in cases where major figures in a recipient Government are involved. That is the issue. I do not know the answer and I hope that the Solicitor-General might be able to clarify that.

Vera Baird: The hon. Gentleman asserted some time ago—I have taken this time to track it down—that it was only the Select Committee's inquiry that disclosed the difference between Mr. Wardle and the Attorney-General. That is utterly wrong. The Attorney-General disclosed that difference of opinion about a point of law in the House of Lords when he first went there within minutes of the director of the SFO making his announcement. The hon. Gentleman should know that a process has been under way for some time to try to improve the corruption law, the Law Commission is seized of the job of doing exactly that and will produce a consultation document later this year, and that we hope for a draft Bill to be attached to it shortly thereafter with a view to legislating. It is not that the law cannot be applied, but it must be improved on and it will be.

Vincent Cable: That is a helpful clarification. On the first point, of course the hon. and learned Lady is right that the difference of view surfaced earlier. I simply mentioned it because the head of the SFO persisted with his arguments several months after the event, presumably having reflected a great deal upon it. Her final comment is helpful and positive.
	The first major set of developments relates to those arguments, the second relates to the allegations—if that is what they are—by the BBC and  The Guardian about the fuller aspects of the al-Yamamah inquiry. When I first mentioned the dreaded name  The Guardian a few moments ago, several hon. Members jumped to their feet with outrage that we should be giving any credibility to this issue at all. However, although that newspaper is not particularly friendly to the Liberal Democrats, it is a serious newspaper, which gives the full power of editorial support to this particular story. But more important than that is the role of the BBC, which did, after all, lose a director-general and a chairman because it had not done its homework correctly on an important and sensitive issue a few years ago. I find it difficult to believe that it would have lent its credibility to a story of this kind unless it had carefully sourced and checked it.
	No one has suggested that there is a contrary version of events, so let us assume for the moment that in the case of the al-Yamamah contract, what happened is broadly what has been described in that account. It means that, effectively, there are two sets of corruption allegations. Perhaps corruption is too loaded a word in this context, so let us say that there are two sets of problems. The Serious Fraud Office investigated the first problem, which dates back to a specific complaint. It originated in Robert Lee International, an intermediate company, which provided services to the Saudi royal family. There was a whistleblower, Edward Cunningham, who went to the SFO with his evidence, which was the basis on which the inquiry was launched.
	The investigation by the BBC and  The Guardian makes a much bigger and more substantial allegation, and it reaches to the heart of government: it is not simply a matter of a relationship between a company and a named individual. The allegation is that £1 billion was paid over a 10-year period at three-monthly intervals into one of two accounts in Riggs bank in the United States under the name of Prince Bandar. He is a very important figure in the Saudi regime. He was named first not in that investigation: I mentioned his name in an Adjournment debate a few weeks before, because it was clear that, where he was concerned, some extraordinary developments had occurred. It had been pointed out to me that, for example, in the period since July 2006, he visited this country 14 times in a private jet that landed at an RAF air base, and that he had six meetings with Foreign and Commonwealth Office officials and undisclosed meetings with others.
	That is clearly somebody who was at the heart of our official relationship with the Saudi Government. There exists a very close relationship between an individual and the British Government, and the same individual is named in the context of the very large payments in this case. I stand to be corrected, but I understand that Prince Bandar is currently the head of intelligence in Saudi Arabia, and that he has held major roles in that Government, including that of ambassador to the United States.
	If the accusations cited are in any way correct, they raise major issues about the role of our Government and their conduct and accountability. We are all operating in the dark, and I have no other evidence, so let me describe what it is argued took place in the context of Prince Bandar and the payments. The House will forgive me if I read for a few moments, because the process is complex and we all need to understand it:
	"According to legal sources familiar with the records, BAE Systems made cash transfers to Prince Bandar every three months for 10 years or more. BAE drew the money from a confidential account held at the Bank of England that had been set up to facilitate the Al-Yamamah deal...Both BAE and the government's arms sales department, the Defence Export Services Organisation (Deso),"
	which we have just discussed,
	"allegedly had drawing rights on the funds, which were held in a special Ministry of Defence account run by the government banker, the paymaster general. Those close to Deso say regular payments were drawn down by BAE and despatched to Prince Bandar's account at Riggs...Under the terms of a previously unknown MoD instruction from the department's permanent secretary, Sir Frank Cooper, the payment deal would have required Deso authorisation."
	It is just conceivable that that is all fantasy, dreamed up by somebody in the bath trying to sell a few more newspapers, but that is improbable. It is a well sourced story that appears entirely consistent with what many independent sources have argued in the past. If the story is true, or even approximately true, it raises issues about two major arms of government. First, there is the financial arm, which is the Treasury and the Bank of England. In the past, I asked the then Chancellor of the Exchequer whether he would explain his role in the matter, but of course, he transferred the questions to the Ministry of Defence, arguing that it was nothing to do with him. He has also said publicly that he knew nothing about it. I am sure that he did not, because the arrangement would not have operated at that level. As has been acknowledged in parliamentary answers, an account was run through the Bank of England. That raises important questions of public accountability about who monitored that account, who was responsible for it and what their level of seniority was, and we deserve answers.

Jonathan Djanogly: Will the hon. Gentleman identify what crime he is saying has been committed?

Vincent Cable: No crime has been committed that I am aware of. If enormous sums of money are swilling through Government Departments, surely it is an elementary requirement of our system of government that somebody is accountable to Parliament to explain that and to answer parliamentary questions. The Opposition parties should ask those questions, rather than trying to suppress them.
	The heart of the matter does not lie in the Bank of England or the Treasury; it lies in DESO. The account that I have quoted went on to say:
	"Before the investigation was abandoned, the SFO interviewed Alan Garwood, head of DESO. Sources close to the arms sales unit say that he and...the commercial director of the Saudi project were questioned about the reasons for authorising the payments."
	In order to make sense of what happened on the al-Yamamah project, we need to know much more about DESO. As far as I understand it, DESO operates in an extraordinary way. It is paid a fee of 2 per cent. of the value of transactions by the Saudi authorities in order to conduct business on behalf of a British company. It is a Government Department that is headed up by somebody who is on secondment from a company linked to BAE Systems earning a fee from a foreign Government for commercial work. It may be that that is entrepreneurial activity in government that we should applaud, but surely somebody should explain the mechanisms and be accountable for them. Is 2 per cent. too much or too little? Where are the accounts relating to that extraordinary business?
	What is at issue here is a question of parliamentary accountability that we have a duty to pursue. In my view, nobody has more of a duty to pursue it than the Public Accounts Committee. I am sorry that he is not here, but the hon. Member for Gainsborough (Mr. Leigh) intervened very early in my speech on the last occasion we considered the matter to explain why the Public Accounts Committee did not wish to publish the original report into the al-Yamamah project, which he admitted that he had never read. None the less, he felt very strongly that the PAC should not publish that report. He said that
	"the National Audit Office is concerned with the Government and not private companies".—[ Official Report, 7 February 2007; Vol. 456, c. 863.]
	However, we now know that the Government are critically involved in all aspects of the operation, so, of course, the PAC must reopen the issue and investigate it as well as referring to its inquiry.
	As a result of the exchanges involving the hon. Member for South Ribble (Mr. Borrow), we have already touched on the third new issue that has arisen, which relates to the US Department of Justice. The United States is a close ally, but it also has strict laws governing overseas corruption—they were introduced rather sooner than ours in the Foreign Corrupt Practices Act 1977. Inquiries have been initiated, and perhaps they were prompted by competitor companies of BAE Systems—it is possible that there is a commercial motivation.
	As far as the journalists who are looking at the matter can establish, the motivation is concern not with the big al-Yamamah architecture, which I have just described, but with a narrow set of transactions—the so-called red diamond payments—under which BAE Systems paid money for services, such as hospitality, for its friends and which flowed through US jurisdiction on this occasion. We do not know whether there is any basis to those inquiries, but it is surely necessary that the British Government give an absolute commitment to maximum co-operation, which means the sharing of files and the evidence that they acquired, because how else is our reciprocal set of obligations with the Americans to be honoured?
	The fourth new issue that has arisen relates to our relationship with the OECD. At its March meeting, two months after our original debate, the OECD working group on bribery reached the following conclusions:
	"the OECD Working Group on Bribery reaffirmed its serious concerns about the United Kingdom's discontinuation of the BAE Al Yamamah investigation and outlined the continued shortcomings in UK Anti-Bribery legislation. It urged the UK to remedy these shortcomings as quickly as possible and decided to conduct a further examination of the UK's efforts to fight bribery."
	The OECD, in a peer group assessment of our progress, is highly critical of what the Government have done in this department, and will no doubt report in due course.
	The aspect of the OECD investigation that leaves a particularly nasty taste is the allegations that have been made within the OECD itself that the Government did not pursue this in a completely detached manner. When I raised this in the Adjournment debate, the Foreign Office Minister who responded gave a very robust reply in which he categorically denied all the dirty tricks allegations that have been made, and did so with such conviction that I completely accepted what he said. None the less, a month later, officials from the OECD told the press—this is from a different newspaper; not the wicked  Guardian again but  The Independent—
	"'The dirty tricks boys were all at work', said a senior OECD official who asked not to be named. 'There was a lot of pressure on a lot of people.'"
	I completely accepted the Government's assurances on this. However, will they explain what they are doing to assure the OECD, whose officials continue to argue that their reputations are being traduced by British officials, that they are pursuing their relations with it in a proper way?
	Finally, let me look forward. Much of this is history. Things have happened in the past that are perhaps regrettable and do not comply with the standards that we currently expect in terms of anti-corruption behaviour. Nevertheless, it is possible for the Government to turn a corner on all this and to pursue their future investigations in a way that reflects the spirit, as well as the letter, of the original OECD provisions. Part of the proof of how the Government are approaching this will be how they deal with their future investigations; I think that six are lined up. I shall briefly enumerate them so that Ministers can indicate whether they are still live and whether they will be pursued by the head of the Serious Fraud Office.
	The first case relates to Chile and the accusation of the £1 million payment to General Pinochet that was unearthed by a Chilean judge pursuing tax evasion. General Pinochet is of course dead, and was presumably the principal witness in that inquiry, so is the case still being pursued? The allegations in relation to Romania relate to the £7 million commission on a £116 million naval contract. The case in South Africa concerns a much bigger contract, where the difficulty is that a very senior figure in the South African Government is involved.
	The case in Tanzania is particularly important because it relates to the full thrust of Government policy in Africa, which is to encourage good governance. The original corruption allegations related to a large payment by BAE Systems on an air traffic control arrangement that was opposed at the time by the current Prime Minister and the then overseas development Secretary. What has made it topical is that the alleged middleman, a Mr. Vithlani, has subsequently been named in Tanzania in accord with two other major corruption inquiries relating to a presidential jet and a military truck. Those who are concerned with honesty and probity in Tanzania are looking anxiously at whether the British Government will pursue their own inquiries.
	In Jersey, an investigation was proceeding for several years into large payments made by Sheikh Hamad bin Jasim bin Jaber ath-Thani, who is Qatar's Foreign Minister. I understand that those investigations have now been discontinued. It was alleged in the Jersey press that that happened because of pressure from Britain, but that is entirely hearsay. However, it is important to appreciate whether the Qatar inquiry is proceeding.
	Those are past inquiries, and as several hon. Members with constituency interests have intervened to say, there are potentially big contracts on the way. It seems to me that there is one simple way in which BAE Systems, with Government support, may ensure that the taint hitherto associated with many arms contracts is removed from any contract achieved or jobs secured. The mechanism to do that, which has been suggested by Transparency International, means that we should put the past on one side, and have an arrangement whereby an independent organisation, such as Transparency International or someone nominated by it, can vet contracts in order to certify that they have been achieved without bribery, and to establish that new contracts, whatever may have happened in the past, are entirely above suspicion. That seems to me a perfectly plausible and praiseworthy initiative, and I shall be interested to hear the Government's reaction to it.
	Looking forward, if the Government pursue their investigations into those other allegations, which I think are still live, and if a mechanism can be found to ensure that any accusation of bribery is removed from future contracts, it is possible to move on from the episode in question. I hope that the Government will take into account the fact that we are in new territory—

Nigel Evans: Will the hon. Gentleman give way?

Vincent Cable: I am just coming to a conclusion, so let me finish.
	What is required is a major step forward in terms of parliamentary accountability, in which the Select Committee on Public Accounts and other Select Committees of the House are able to investigate, in a more transparent way than in the past, many of the accusations that have been made and which appear to have substance.

Vera Baird: I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
	"supports the Government's stance against international corruption; welcomes the action it is taking to tackle it; and recognises that the decision to discontinue the Serious Fraud Office (SFO) investigation into BAE Systems plc and Saudi Arabia was taken by the Director of the SFO alone for reasons of national and international security.".
	When the Liberal Democrats speak, money swills through Departments. The word "implausible" can be used liberally about the Prime Minister, the director of the Serious Fraud Office, the Attorney-General, senior civil servants and—very nearly—the Select Committee on Public Accounts. Prosecutions are stopped on a whim, and unsourced allegations from nameless people in newspapers are enough to rebut what Ministers of State have said in this House. An evidence-free zone surrounds the Liberal Democrat Front Benchers on this issue, and today we have heard a barrel-load of conspiracy theories that would disgrace a juvenile anorak.
	I welcome the opportunity to respond to this debate. On the fundamental question of the Serious Fraud Office investigation nothing has changed, although we have had a number of debates on the matter in this House. I am going to take the opportunity to deal in some detail with the basis of SFO director's decision to stop the investigation in question, since clearly—let me put it as politely as I can—somebody still has questions about it.
	The decision was taken precisely according to the requirements of our current, unwritten constitution. No Government have, to date, changed these requirements, which have existed for a very long time—probably as long ago as when the Liberal Democrats were last in office, a period which is into three figures and growing. A question may emerge whether it will subsist for 100 years to come, which is at least the length of time it would take for the Liberals to get back into power on today's showing—if anyone ever trusts such a totally disreputable set of peddlers of appalling scandal. The decision was taken by Robert Wardle, the director of the SFO. The SFO had been investigating for two and a half years whether officials were bribed to win the al-Yamamah contract for BAE Systems. Its view was that approximately another 18 months of investigation were necessary to decide whether there would be a prosecution. Unlike the other prosecuting authorities, the SFO is an investigatory body too.
	The then Attorney-General, Lord Goldsmith, agreed with Mr. Wardle's decision to halt the investigation. Lord Goldsmith had undertaken a Shawcross exercise before the decision. That exercise is undertaken when the Attorney-General consults ministerial colleagues on the public interest implications of proceeding with a prosecution—or, in the case that we are considering, an investigation. It is a well established and wholly legitimate procedure, which Sir Hartley Shawcross articulated in 1951, when he was Attorney-General.

David Howarth: Will the hon. and learned Lady give way?

Vera Baird: I shall not give way during my account of the facts. After that, I shall do so.

David Howarth: rose—

Vera Baird: As I said, I shall give the hon. Gentleman ample opportunity to intervene later, but I shall go through the facts first because so many attempts have been made to obfuscate what truly happened that it is vital that the public understand who is firing with ridiculously bent bullets from the Opposition Benches.
	Mr. Wardle explained to the Constitutional Affairs Committee the nature of the Attorney-General's superintendence role over the SFO. He said that he would brief the Attorney-General and the Solicitor-General on specific cases as a matter of routine— perhaps complex ones or those in which the public interest was likely to be important. He said that he did so in the al-Yamamah case and that the Attorney-General first initiated a Shawcross exercise in December 2005, consulting various Ministers. The hon. Member for Twickenham (Dr. Cable) tried to make something sinister of that, so let me make clear what happened. At that stage, views were expressed about the commercial implications that might flow from the investigation, but the Attorney-General concluded that it should proceed.
	Let me mention the Organisation for Economic Co-operation and Development convention on combating bribery of foreign public officials in international business transactions, which we signed in 1997. Article 5 provides that investigating and prosecuting the bribery of foreign public officials shall
	"not be influenced by considerations of national economic interest"
	or
	"the potential effect upon relations with another State",
	hence the decision in December 2005 that commercial interests should not be relied on as a reason for stopping the SFO investigation.
	In 2006, Mr. Wardle said that evidential issues and the public interest re-emerged as questions. He ultimately decided that, although he would like to continue the investigation to ascertain whether charges could have been brought, he came to know of issues that made him reach the following decision:
	"To continue the investigation was in my view likely to cause grave damage to the public interest, to national security, and I fully accept that the result of the investigation would be uncertain."
	Before that decision, Mr. Wardle consulted the Attorney-General, who received further views on the public interest in the form of a memorandum from the Prime Minister, which Mr. Wardle saw. Of course, I took no part in that decision, but I have now seen the memorandum from the former Prime Minister. It makes clear his view that developments in the SFO investigation could have given rise to a genuine and immediate risk of a collapse in UK-Saudi security, intelligence and diplomatic co-operation and that that was likely to have seriously negative consequences for the UK public interest in terms of national security and our highest foreign policy objectives in the middle east. The then Prime Minister was clear that the decision was a matter for the independent prosecuting authority, but felt that he would fail in his duty if he did not bring those issues to the Attorney-General's attention.
	The former Prime Minister set out the centrality of Saudi Arabia and co-operation with its authorities to our efforts to protect British lives, and the risk of such co-operation being withdrawn. The document is some pages long and it goes into specific detail, which makes it compelling. It also deals with defence and foreign policy issues and states that the Secretary of State for Defence confirms the defence issues, and that both he and the Foreign Secretary share the Prime Minister's overall assessment of the damaging impact of the SFO investigation. That assessment is formed on the basis of advice from the Government's most senior national security official advisers. The Prime Minister's minute was accompanied by further assessments from very senior officials, including Sir Richard Mottram.

David Howarth: rose—

Vera Baird: Wait for it.

David Howarth: Will the Solicitor-General give way?

Vera Baird: I will not.
	Those are not documents that could weigh lightly. Mr. Wardle told the Constitutional Affairs Committee that he had two subsequent conversations with the ambassador. Let me turn to that issue, because it is a subject of some—forgive me for using the term—scurrilous criticism of Mr. Wardle. What he did was to see those documents. He subsequently had two conversations with the ambassador, on 8 and 12 December—he had already had one conversation about the issues. At those meetings, he was able to probe the issues as much as he wished. Mr. Wardle is a professional lawyer at the head of an investigation and prosecuting body. I would expect him to be able to probe expertly the ambassador's position not only on the centrality of Saudi Arabia but on the likelihood of the breakdown of relations, which would offer danger to national security.
	Mr. Wardle told the Constitutional Affairs Select Committee:
	"I was satisfied, on what I had been shown and certainly the conversations I had with our ambassador...that the co-operation would have been withdrawn. In fact...I would have been satisfied it would have been. Certainly there was a very serious risk."
	Asked by the hon. Member for Chichester (Mr. Tyrie), a Committee member, whether he thought everyone else would agree or whether others might not, Mr. Wardle said:
	"I do not think it was finely balanced."
	Mr. Wardle was asked about Saudi benefits from an exchange of intelligence—the very point in a thunderstorm of allegations from the Liberal Democrats that the hon. Member for Twickenham raised. Mr. Wardle said that the question "Were the Saudis bluffing?" was something that he went into in his conversations with the ambassador. From what he was told, they were not.
	Mr. Wardle has been clear that the decision was his. While he properly consulted the Attorney-General in his statutory superintendence role, he has made it clear that he came under no improper pressure from the Attorney-General. Mr. Wardle has said, again to the Committee that the right hon. Member for Berwick-upon-Tweed (Mr. Beith) chairs, that he had "no problem with the way the government has handled this" and that the then Attorney-General had acted "absolutely professionally" and played "with a straight bat".
	Mr. Wardle of course knew the state of the investigation, the input of expertise, the time that the SFO had already devoted to it and the £1.3 million estimated cost. He certainly understands the public interest in prosecuting corruption, since that is what he spends most of his life doing. Many of his cases are overseas corruption investigations. He has, with Lord Goldsmith, recently obtained blockbuster funding from the Treasury to investigate oil-for-food corruption in connection with the Saddam regime in Iraq. Mr. Wardle accepted in evidence to CASC that the decision had damaged the SFO's reputation for dealing with corruption. He will therefore have quite obviously taken that danger into account as well. There can be no doubt that he was in the best possible position to balance competing considerations and come to a conclusion as to where the public interest lay.
	Lord Goldsmith saw the same documents, knew the investigation and obviously understood the purpose and need for corruption prosecutions for the greater good. He agreed with Robert Wardle's decision to halt the investigation. Lord Goldsmith was concerned that any prosecution might not succeed. Mr. Wardle would have preferred to try for further evidence and said only that the outcome was uncertain, and so they differed on that. Mr. Wardle took the decision. The Attorney-General's difference was on whether, since our law of corruption involves the need to show payment to an agent without the approval of the principal, the payments to senior officials in this case might have been made to, or with the knowledge or consent of, the relevant principals—a matter of evidence. In the event, this difference of view was not tested, because of Mr. Wardle's decision to halt the investigation on national security grounds.
	The process that I have described is exactly what our constitution requires to happen, and the decision is evidenced by all concerned to have been taken independently, on information from a variety of sources that led Mr. Wardle to conclude as he did. I have set this out extensively because there has been innuendo upon innuendo, yet when the facts are thus set out, the innuendo is shown to be without any foundation. I hope now that it will now stop.

Alan Beith: The hon. and learned Lady has referred extensively to the Select Committee. She has somehow implied that for the Select Committee to ask Mr. Wardle, who was an excellent witness before the Committee, a whole series of questions about how the decision had been arrived at—very similar questions to those that my hon. Friend the Member for Twickenham (Dr. Cable) has asked today—involved some kind of innuendo. Surely asking questions is an entirely proper means, both in that process and in this debate, of establishing the facts of the matter.

Vera Baird: I have suggested absolutely no such thing. I have relied on the evidence. I am glad that the right hon. Gentleman agrees that Mr. Wardle was an excellent witness. I have spoken to him, and I would expect him to be an excellent witness and a wholly reliable figure. I see the right hon. Gentleman nodding. Can he not curb the excessive desire of those on his Front Bench to refer to what Mr. Wardle said as "implausible", when his own view conflicts with that by finding him an impressive witness? In my view, the inquiry by the Constitutional Affairs Committee was penetrating and drew out essentially what I have just put forward—namely, that this decision was taken independently after a great deal of independent thought by the expert who was best placed to take the decision.

Nigel Evans: The Solicitor-General has just stated that she hopes the mud-slinging and constant returning to this issue will stop. Does she accept that if that does not happen, it will have a commercial impact on BAE Systems, its workers and its future orders? Carrying on in this manner is jeopardising thousands of jobs.

Vera Baird: The hon. Gentleman makes his own point.

David Howarth: There was one particular part of the story that did not come out in the evidence to the Constitutional Affairs Committee, but which did come out in the Government's written case in the judicial review. This involved the separate exercise at the end of September 2006 in which the Attorney-General's office received further representations from the Cabinet Secretary about the public interest and raised the possibility of Saudi Arabia's co-operation on counter-terrorism being prejudiced. Nevertheless, at that stage the Attorney-General decided that the investigation should continue. That point did not come out in the evidence to the Select Committee. What precisely changed between 30 September and the separate exercise in December?

Vera Baird: I have told the House what forces prevailed when the decision was taken. Surely that is the important point. I have no doubt that issues were raised, re-raised and considered, but it is clear that at some point this came to a head and a decision had to be taken on whether we should jeopardise our national security.
	The OECD has scrutinised the decision and the basis on which it was taken. The SFO and other UK authorities have co-operated fully with the OECD. Indeed, the OECD issued a press release expressing its appreciation of the openness with which we have given our explanations, although hon. Members would not suspect that for a minute, given what we have heard from the Liberal Democrats today. We are satisfied that the decision made by Mr. Wardle was compatible with the OECD anti-bribery convention. We do not believe that the convention was intended to stop national authorities acting to protect their national security.
	Opposition Members referred earlier to a legal challenge. That legal challenge brought by the Corner House resulted in the view that we were entitled to act to protect our national security—that must be a commonplace to everyone but the Liberal Democrats—which was borne out by Mr. Justice Collins, who refused permission for judicial review. He said the challenge was "bound to fail" on the basis that
	"it is clear that national security must prevail and that no State could be expected to take action which jeopardises the security of the State or the lives of its citizens".
	The claimants have now sought to renew their application for permission at an oral hearing, but the SFO will continue to resist the challenge. The head of the OECD Secretariat, Professor Michael Pieth, has himself apparently accepted that the OECD convention allows cases to be stopped on national security grounds, although he added the rider
	"in an extreme case of necessity".
	I am not sure on what basis he chose to add that qualification, but it should not be thought, asserted or pretended that the OECD has reached any finding that the halting of the SFO investigation amounts to a breach of the convention. It has not. It is, in any event, not the job of the OECD to inquire into individual cases or to act as any sort of judicial body. The UK remains a strong supporter of the OECD convention, and the UK authorities are co-operating with the OECD's review, which is about our anti-corruption laws in general.
	Mention has been made of an investigation in the United States. The Home Office, as the central authority for these purposes, has received a request for mutual legal assistance from the United States. That request is receiving appropriate consideration in accordance with procedures and the relevant law. Any decision on that request will ultimately be a matter for the Home Secretary. Beyond that, I cannot comment at this stage.
	I should like to speak about the future. I obviously accept that this case has been controversial—although not, I venture to suggest, as controversial as the Liberal Democrats would have us believe by stirring it up. I have tried to be as open as I possibly could be with the House today about the basis on which the director of the SFO took his decision. The same applies to the former Attorney-General and Solicitor-General, who went straight to Parliament when the decision was made, and they have been equally open in the numerous debates that have taken place in both Houses.
	I think we need to consider, however, whether there are ways in which these issues can have brighter light thrown on them, perhaps at an earlier stage. As the House knows, the Prime Minister has committed the Government to a programme of constitutional reform, with the express intent of being as open and transparent as possible and of divesting the Government of powers that can be exercised by Parliament or with closer parliamentary supervision. It is well worth considering whether other ways can be found of informing Parliament about cases of this sort—in particular, those cases where decisions are taken on the basis of sensitive intelligence that cannot be made public.
	I imagine that the Government would be in an altogether more comfortable position at large if we were able to say that, notwithstanding the total personal integrity and total constitutional propriety with which this advice was given, we had exposed material that underpinned it to a thoroughly security-checked group of Members of Parliament of all parties. That would have to be a group of people in whom obviously the public, but equally the security services and the prosecution authorities, had confidence.
	I can say that the former Attorney-General himself provided information about such a case, in which a similar decision had been made—similar in the sense that it was a decision not to prosecute in the public interest. He recently gave to the Intelligence and Security Committee some background material that contextualised the decision and the legal reasoning behind it. It may be that more use could be made of such a mechanism or other options may be available.
	The House will further know that, following the programme of constitutional reform set out in the Green Paper "The Governance of Britain", we will shortly issue a consultation document on the role of the Attorney-General and the Solicitor-General: they have identical powers and responsibilities, save that on the current configuration they are accountable to different Houses. One aspect of that consultation will concern the Attorney-General's responsibility for criminal prosecutions, and the Law Officers' accountability to Parliament. As part of that consultation, the Attorney-General and I will be happy to consider any proposals on such topics.
	I should remind the House of what strong action the Government are taking against corruption world-wide. First, we are committed to reform of our law. That is far from straightforward. A draft Bill was subjected to pre-legislative scrutiny by a Joint Committee of both Houses in 2003—I was on that Committee, and if there is to be blame for delay, I shall have to share some of it as a Back Bencher, as we did not support that form of the Bill. We thought that it could be improved, and we sent it back. The Government responded, but the issues are hugely difficult, and we have asked the Law Commission to research the issues and prepare a draft Bill. That will include consideration of the experience of other countries that have implemented international conventions in this area. We have asked the Law Commission to prioritise that, and have made additional resources available to expedite it. It aims to produce a consultation document this autumn, with a report and draft Bill in 2008.
	Meanwhile, let me set out the SFO's vigorous pursuit of international corruption. My hon. Friend the Minister for the Middle East will say more later about broader steps that we have taken and are taking. The SFO, however, is pursuing a large number of cases, including some relating to BAE Systems.
	One such case concerns allegations of corruption in relation to a joint venture within the Czech Republic between BAE Systems and Saab to lease fighter planes to the Czech air force in 2002. The Swedes have started their own investigation, with the assistance of the SFO. On 10 May this year, the SFO called for a meeting at the headquarters of Eurojust at The Hague, with members of the Czech investigation team. The SFO tabled a proposal for a more co-ordinated approach to aid the investigation, which was agreed. Since then, there has been active co-operation, and meetings of the Czechs, Swedish prosecutors and the SFO took place last month in London.
	The SFO is also investigating allegations of corruption, again in relation to BAE Systems, within the state of Romania. The case concerns a contract to sell refurbished frigates to the Romanian navy in 2002. Again, excellent support has been afforded by the Romanian authorities and a letter of request has resulted in a visit to Romania by SFO investigators, during which excellent co-operation was achieved.
	An investigation is also taking place of a contract awarded by the Government of Tanzania in 1993 to upgrade its air traffic control systems. The contract was with Siemens Plessey, which was acquired by British Aerospace in 1998. The Prevention of Corruption Bureau of Tanzania has commenced its own investigation. The SFO has given considerable technical and legal support and advice to that body. SFO lawyers with junior counsel, an investigator and an experienced Ministry of Defence police officer visited Tanzania in May. Three members of the PCB are currently working on the investigation and are spending July at the office of the SFO, where they are receiving support and training.

Mark Hendrick: Given that the Government and the SFO are pursuing all these additional investigations with regard to BAE Systems, does it not seem ridiculous that the Opposition should make such a big fuss over the al-Yamamah deal? As my hon. and learned Friend clearly outlines, the Government's commitment is forthright.

Vera Baird: The Government's anti-corruption commitment is well known everywhere except on the Liberal Democrat Front Bench.
	Another investigation concerns corruption in South Africa relating to the sale in 1999 of Hawk and Gripen jets to the South African air force. In June, an SFO team visited Pretoria and held a series of meetings with the national police authority, getting strong support.
	The SFO is currently investigating nine other overseas corruption cases, not including the oil-for-food investigation, for which special ring-fenced funding has been agreed. The SFO mutual legal assistance section is giving sustained support to investigations in a number of other jurisdictions, including Zambia and Kenya as well as to the judicial inquiry in Uganda investigating allegations of mismanagement surrounding the Global Fund to Fight Aids, Tuberculosis and Malaria.
	The SFO is widely acknowledged as a lead player in international investigations and provides support and training to anti-fraud and anti-corruption bodies in less developed jurisdictions. It is entirely right that the BAE Systems decision is contextualised in that way.
	Finally, Mr. Wardle and the former Attorney-General and Solicitor-General, in respectively taking and advising on, in good faith, a decision, which it was their duty to do, were bound to land in controversy, probably whichever way they decided. If there are ways in which, in particular, democratically elected representatives of other parties can be more fully informed on such occasions, it may prevent scandalmongering of the kind that we have seen today, and more broadly it will be in the public interest.
	In the ways that I have proposed or in other ways, we are open to suggestion in the spirit of openness and transparency that underpins the Green Paper "The Governance of Britain". Now that I—like my predecessors and those of my noble Friend the Attorney-General—have done my best to be as open and transparent as it is possible to be within the terms of the current constitutional arrangements, I hope we can look forward to fair input and constructive support in our quest—in this area of the law as well as others—for a sound constitution for the 21st century.

Jonathan Djanogly: I congratulate the Solicitor-General on her new role.
	The motion is very widely drawn. It is much too widely drawn for our liking. It is too scattergun in its approach, and, dare I say, plenty of heat and too little light are emanating from the Liberal Democrats. The motion is too vague to receive our support today; however, we think it appropriate to debate the issue of dealing with overseas corruption and to review past events, not least in an attempt to establish a new consensus on the pressing issue of addressing bribery and corruption. In that context, I should make it clear that the Conservative party believes there is a need for further and clearer legislation to tackle overseas corruption.
	Let me begin by saying something about the Tanzania contract, which is mentioned first in the motion and which we believe to be a relatively clear-cut issue. In 2001, the British Government were asked to consider applications for export licences for the sale to the Tanzanian Government of a military-level air traffic control system. The system cost some £28 million, and the heavily indebted Tanzanian Government took on more debt to secure it. The International Monetary Fund told the then Prime Minister, Tony Blair, that it was very concerned about the impact of the purchase on Tanzania's external debt burden. Despite the opposition of all the most informed, respected and qualified observers, approval for the licences was forced through what I understand to have been a divided Cabinet by the Prime Minister. Last year the Serious Fraud Office and the Ministry of Defence began investigating the deal for alleged corruption. It appears that we are talking about £12 million of commissions, some 29 per cent. of the contract value being in commissions.
	The Conservative party remains very concerned that the Tanzanian contract has damaged this country's reputation for fighting corruption. That is why my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) called a debate on the issue as long ago as 30 January this year. I thank the Minister for taking the opportunity to tell the House today what point the investigations have reached, although I am not entirely sure from what she said that they have moved much further forward.
	Corruption and bribery legislation in the United Kingdom has of course been under scrutiny for some time. Existing English law is based on the common-law offence of bribery and a range of add-on statutory offences. The scope of United Kingdom bribery offences was extended to bribes offered outside the United Kingdom by part 12 of the Anti-terrorism, Crime and Security Act 2001. However, as it seems to apply only to United Kingdom companies and not to foreign subsidiaries of such companies, its worth is limited.
	Proposals for reform were made as a result of the Law Commission's 1998 report, and in December 2005 the Government started a consultation on the reform of corruption laws. In March this year, however, the Home Office announced that no consensus had emerged from the consultation, and that the Law Commission would be asked to undertake a further review. In parallel with the Government's efforts and in order to facilitate discussion of the need for comprehensive legislation, an alternative proposal was introduced as a Private Member's Bill in the House of Lords in November last year. At this stage it is unlikely to translate into legislation. Nine years down the road and despite all the usual new Labour anti-corruption spin and promises, we are not even close to new anti-corruption legislation. Has that become a priority now that a new new Labour regime is in place? The Solicitor-General addressed that issue in her earlier remarks, but will she commit to such reform being a priority?

Vera Baird: I have already said that we have asked the Law Commission to prioritise that. We have given it extra resources and when we receive its consultation document, which we hope and expect will be accompanied by a draft Bill, we will give it all priority. I should add that it is not for want of trying that the Government have not managed to change this law. Proposals were scrutinised in depth, including by Conservative Members in the Joint Committee on the draft corruption Bill, and they were sent back. I hope that our efforts have made the law—when it comes—better than before.

Jonathan Djanogly: I thank the Solicitor-General for the confirmation that that is a priority.
	On the al-Yamamah contract, the 1985 deal took three years to complete and involved the sale of fighters and trainer jets, the construction of two airbases and a range of other equipment and training, provided by more than 3,000 British experts stationed in Saudi Arabia. The contract is reported to have been worth some £40 billion to the UK over the last two decades, and it has secured our country's position as one of the world's top defence experts. The contract was renewed in 1992, after the Saudis agreed to buy another 48 Tornado fighters, and in 2005, in the deal's third stage, the British agreed to sell up to 72 Typhoon planes.
	The Serious Fraud Office launched an inquiry into allegations surrounding the al-Yamamah contract. SFO officers seized documents and arrested and interviewed some BAE Systems officials. The SFO discovered details of commissions being paid via Swiss bank accounts, although BAE and the Saudis have always denied any wrongdoing. The Saudi Government have also expressed anger at investigations into members of the Saudi royal family.
	In December 2006, the then Attorney-General, Lord Goldsmith, stated that the SFO would discontinue its investigation. The SFO maintains that it was its own decision to pull out of the inquiry prompted by concerns over potential damage to national security, as opposed to its being forced to do so by the then Attorney-General. Lord Goldsmith stated that all relevant agencies were clear about the importance of UK-Saudi relations in the fight against terrorism. He said that if that co-operation were lost, there would potentially be damage to UK national security.
	Some have argued that the SFO was told to stop the investigation because another multi-million pound deal with the Saudis might be lost. That is particularly relevant as it would constitute a breach of article 5 of the Organisation for Economic Co-operation and Development convention on combating bribery of foreign public officials in international business transactions. Its key words are:
	"Investigation and prosecution of the bribery of a foreign public official...shall not be influenced by considerations of national economic interest".
	However, the then Attorney-General and the director of the SFO—and the Solicitor-General again today—have claimed that the decision was not based on commercial interest, and the then Attorney-General made it clear in the other place on 1 February that he did
	"not believe that the convention does, or was ever intended to, prevent national authorities from taking decisions on the basis of such fundamental considerations of national and international security."—[ Official Report, House of Lords, 1 February 2007; Vol. 689, c. 378.]
	We do not dispute that interpretation of the convention, but the Liberal Democrats must say whether they do, and cut through some of the confusion they have caused.
	There is, however, a further question: to what extent were there fundamental security issues? On 16 January, a report in  The Guardian suggested that Sir John Scarlett, head of MI6, will not endorse the idea of British national security being at risk as a result of the probe, and that MI5 had no evidence that Saudi Arabia would sever its security links with the UK. However, following the report, the Foreign Office stated:
	"Contrary to the Guardian article, SIS (MI6) shared the concerns of others within the government over the possible consequences for the public interest of the SFO investigation."
	On 18 January, Lord Goldsmith stated that all relevant agencies were clear about the importance of UK-Saudi relations in the fight against terrorism and that if that co-operation were lost, there would potentially be damage to UK national security. The hon. Member for Twickenham (Dr. Cable) spells out the deliberations of the Attorney-General and the head of the SFO, but we understand that ultimately the SFO maintains that it decided to pull out of the probe and that it was not forced to do so by the then Attorney-General—although the Attorney-General has the technical power to do that. I note that the Solicitor-General has today given further details of the national security implications, which was helpful. The Attorney-General had another reason to end the probe. He said in the other place that he was
	"sceptical about the evidential basis".
	He also said that after clearing his diary and spending some three days reviewing the evidence in detail with SFO investigators, and then taking leading counsel's advice, he
	"formed the conclusion that, ultimately, this case was not going to succeed".—[ Official Report,  House of Lords, 1 February 2007; Vol. 689, c. 380.]
	We ultimately accept that position, and would not want to spend yet more millions of taxpayers' money on a trial doomed to failure from the start.
	The Government also spoke about the problem of getting evidence from Saudi Arabia in a scenario in which no one from BAE Systems or Saudi has said that they had done anything wrong.

David Howarth: The point that the hon. Gentleman has not taken into account is that the director of the SFO disagreed with the Attorney-General's assessment of the likelihood of success in an eventual prosecution. It is not just a political point; it is an important point about what the law said at the time and what evidence there was.

Jonathan Djanogly: The hon. Gentleman is right, as the Solicitor-General said that he was. I do not think there is any dispute that there was a difference of opinion between the SFO and the Law Officers, but it seems that there was a progressive discussion, which eventually came to a conclusion.

David Borrow: My understanding is that Mr. Wardle believed that there was a possibility of a prosecution if the investigation continued, not that he had the evidence to justify a prosecution, nor that he believed that there would be a prosecution. It was the Attorney-General's view that there was not and would not be enough evidence for a prosecution.

Jonathan Djanogly: That is right. The Attorney-General came to the House of Lords and said that there were two planks to the decision. On one, he had a difference of opinion with the SFO. That has come out, and more details have been provided today, for which we should be grateful.
	The Liberal Democrats' motion states that
	"serious damage has been done to the reputation of British business".
	The issue is complicated by the fact that it is not just a case of a private company contracting with the Saudi Arabian Government. As my hon. Friend the Member for Beaconsfield (Mr. Grieve) said:
	"It is a relationship package at a Government-to-Government level rather than an ordinary commercial agreement."—[ Official Report, 7 February 2007; Vol. 456, c. 881.]
	Furthermore, it is plain that the cultural view of bribery—or shall we call it greasing the wheels?—has changed dramatically in the UK since al-Yamamah was first signed more than 20 years ago. That cultural change was represented by the 1997 OECD convention. We could spend much time looking at the nature of agency payments, but as over-generous and distasteful as those payments and the related corporate entertainment may have been, and as many good headlines as were created for the tabloid press as a result, there seems to be inadequate evidence, after much investigation, to prove that a crime was committed.
	On 7 February, my hon. Friend the Member for Beaconsfield, the shadow Attorney-General, concluded that there was no evidential basis for the Attorney-General having been involved in any wrongdoing in relation to the closure of the investigation. I see no reason to change our position now, but if any additional and significant information is available, it should be handed over to the relevant authorities for consideration.
	The Liberal Democrats' motion refers—their Front-Bench spokesman did not—to
	"the consequences for the role of the Attorney General".
	However politically convenient it may be for them to attribute blame to the Attorney-General, we believe that there is insufficient evidence to sustain such an assertion.
	Moreover, the Lib Dems seem to be missing the real issue, which is that what constituted the public interest was and is cultivated not by the Attorney-General, but by the Prime Minister, the Foreign Secretary and the Cabinet, all of whom have been remarkably quiet on the issue. My right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind) said:
	"If the ultimate reason for the decision was national security, it would be for neither the SFO nor the Attorney-General but the Prime Minister to express a view on the matter. It would be the Attorney-General, reflecting the view of the Prime Minister, who would then have discussions with the SFO."—[ Official Report, 7 February 2007; Vol. 456, c. 886.]
	The Solicitor-General today set out some more detail from the Prime Minister's memorandum, for which we were grateful. However, I note that it has been released now rather than at an earlier stage. I feel that the Government could have been more transparent in that regard.

Andrew Tyrie: When Robert Wardle was asked who took the decision and was told that the Prime Minister had asserted that he had, apparently he replied that it was his view that he had taken it.

Jonathan Djanogly: I thank my hon. Friend for that clarification. Do the Lib Dems not realise how convenient it must be in practical terms for the current Labour Cabinet to let the ex-Attorney-General be the primary target for their criticism? Do the Lib Dems believe, in constitutional terms, that removing the Attorney-General and Solicitor-General from Parliament would mean that their accountability to Parliament would improve? I would say that it would not. As they would not be able to speak in Parliament, the Law Officers could even more easily be used as a scapegoat by the Cabinet if things were to go wrong.

Vera Baird: I am quite puzzled about how the hon. Gentleman has managed to conjure up a situation in which the Cabinet is blaming the last Attorney-General, when I spent a long time this afternoon justifying and setting out in great detail why he did his duty properly and with integrity. No one is blaming him at all; he was right.

Jonathan Djanogly: I certainly did not say—let me make this clear—that the Cabinet, or anybody else, is blaming the last Attorney-General. I am saying that the Prime Minister and the Cabinet could have been rather more transparent and open in their views of what constituted national security interests. They seemed happy to leave it to the Attorney-General to make that case for them when it is arguable that they should have had more of an input themselves.

Vera Baird: It is quite difficult to win in this case. The hon. Gentleman has complained already that the Prime Minister was ready to say that he took full responsibility, making it plain that he had had substantial input, and yet the hon. Gentleman complains that somehow that Prime Minister left the Attorney-General to carry the can when he should have intervened. The hon. Gentleman needs to be realistic about the allocation of appropriate roles. The Prime Minister made the position clear, the Attorney-General passed the view on, with his advice attached, and Mr. Wardle made the decision—it is very clear.

Jonathan Djanogly: We can disagree on that point.
	The Conservative party believes that on the basis of the then Attorney-General's comments about the highly speculative nature of the inquiry and any final prosecution being unlikely, the decision to discontinue the investigation in view of the potential damage to our national security was inevitable and the only sensible course of action. However, it is important that lessons be learned from those events. The great failing of the motion is that it looks back rather than forwards. It does not even mention the need to improve the legislative framework to deal with corruption, although the hon. Member for Twickenham touched on that aspect in his remarks.
	There is clearly a need for the Government to provide greater guidance on the operation of the 2001 Act and its impact on payments to individuals abroad, in addition to the Minister's support for earlier and better transparency on the mechanisms of Government decisions. That was certainly a welcome development, and we look forward to receiving further details on it. As for BAE, we welcome its decision to appoint Lord Woolf to carry out a review of its ethical standards and I note that the Minister provided the House with an update on the other SFO investigations into corrupt practices of UK businesses overseas.
	Although we are unable to give our support to the Lib Dem motion, we hope that today's debate will reinforce the need for the Government to produce legislation to deal with the issues that have been highlighted by the motion. It is unacceptable to us that such an important issue as corruption is being dealt with in the form of a private Member's Bill, not least because it trivialises our need to comply with our obligations under article 1 of the 1997 OECD convention on bribery. The Government need to take responsibility for the issue and to move the agenda forward. I note and welcome the Minister's promise of a draft Bill and we hope that its delivery will involve less delay than in the past.

David Borrow: I begin by pointing out that BAE Systems is a major employer in my area; I chair the all-party aerospace group; I am a member of the Select Committee on Defence; and I am a member of the Quadripartite Committee, which is responsible for reviewing arms exports. I therefore come to the debate with a clear vested interest in defending the interests of my constituents. I ought also to put on the record the fact that in 1999, I attended the Paris air show with the help of BAE Systems. I mention that because  The Guardian report this morning was slightly ambiguous.
	My constituents and those of other Lancashire MPs would have preferred that the SFO inquiry had reached a conclusion. The inquiry went on for years before it was stopped, yet the controversy, the uncertainty and the damage to BAE Systems and the wider British defence industry continue. I would have been much happier if the SFO had come to a decision, either that there was no evidence to justify a prosecution—end of story, that is it—or that there was clear and good evidence and that a prosecution should go ahead. Now, however, we have the worst of both worlds, because there are people in the UK who are more than happy to keep stirring the story—the Liberal Democrats in the main, but also journalists from various newspapers and the broadcast media. They do not accept that the SFO inquiry was stopped legitimately, in accordance with the constitution and for the correct reasons; they want to keep the story and the controversy going.
	What is clear and what people ought to recognise is the number of jobs in the defence industry in this country that will be put at risk if we continue to raise this issue and to stir the pot. The estimate that I have is that the current contract—which is not signed and sealed—with Saudi Arabia for 72 Typhoons is worth £6 billion in the first instance, and that if it is extended to support maintenance and servicing of the aircraft for 20 years, it could be worth £40 billion. The contract will support 16,000 jobs, mainly in BAE Systems in Lancashire, but also in Rolls-Royce in Derby and Bristol.

Nigel Evans: Does the hon. Gentleman accept that many of those thousands of people are not employed directly by BAE Systems, but work for smaller contractors and suppliers? All sorts of people throughout Lancashire depend on a healthy and vibrant BAE Systems getting the order.

David Borrow: I agree wholeheartedly. It is not only people working for the supply chain and the big companies in Lancashire who are affected. Few constituencies in this country do not have defence companies with direct links with either BAE Systems or another company that could be damaged by the continuation of this campaign by the Liberal Democrats. I sometimes wonder whether the Liberal Democrats realise that they have defence companies in their own constituencies. Do they realise the consequences of the campaign that they are waging, or are they so busy listening to the metropolitan chattering classes that they have forgotten the jobs, families, mortgages and so on that will be at stake if they continue to stain the reputation of the defence industry in the UK?

David Howarth: Everyone in the House realises what economic interests are at stake. It is just that some of us think that the rule of law is more important, because on the rule of law depends the whole of the economy, not just parts of it.

David Borrow: Here we come to the heart of the problem. My hon. and learned Friend the Solicitor-General explained in detail the constitutional process that the Government and the Law Officers went through with the SFO before a decision was made to stop the investigation into the deal with Saudi Arabia—a deal that started more than 20 years ago. But Liberal Democrat Members do not accept the basis of that decision, so they wave the rule of law and say that it is not being applied, even though Ministers have explained in great detail every stage of the process that led to a decision that was made in the national interest. I assume that they do not agree that the decision was in the national interest, either, and that they are prepared to put at risk UK security by continuing their campaign.

Mark Hendrick: Has not our hon. and learned Friend the Solicitor-General convincingly made the case that the correct process was gone through and that the rule of law has been applied? What is in question is the Liberal Democrats' motives. Clearly, the rule of law has been applied and part of the assessment has been put to them. Why do they persist in stirring the pot, causing all this uncertainty and instability in our industries, when they know full well that many jobs are at stake?

David Borrow: I agree completely with my hon. Friend. Over the weekend, thinking about the debate, I wondered what the Liberal Democrats would do if, by some fluke, after the next election they found themselves in government, with one of their number responsible for this matter. Would they open all the cupboards and filing cabinets and publish all the information on the complexities of the agreement that was made in 1985 with Saudi Arabia and subsequent agreements—agreements that were made Government to Government as well as with BAE Systems and that were largely confidential? Would they simply forget about all those understandings between Governments and simply print, publish and distribute every bit of information they had? They seem to be arguing that that should be done.

Lynne Featherstone: Why does the hon. Gentleman think that the OECD is coming to investigate the case?

David Borrow: I understand that the OECD is not doing so.

Vera Baird: Even the Liberal Democrat spokesman, the hon. Member for Twickenham (Dr. Cable), understood and asserted that we were not dealing with an OECD inquiry into the case. Perhaps the hon. Member for Hornsey and Wood Green (Lynne Featherstone) should listen.

David Borrow: I have been around this place long enough and tangled with Liberal Democrats locally often enough to know that the truth and the Liberal Democrats are rarely in the same room.
	I have spoken with a lot of my constituents who work for BAE Systems. They recognise that we have to follow procedures and, if something wrong has been done, they want people to be prosecuted. However, they also say to me, "David, this deal was done 20-odd years ago, when Mrs. Thatcher was Prime Minister in a Conservative Government. We have had a Labour Government for 10 years, and the law has been changed and tightened up. The allegations that have been made relate to a deal that was made in 1985. The payments were presumably made after that, with the knowledge of the Saudi Arabian Government, with the knowledge of our Government and with the knowledge of BAE Systems. Where is the bribe? Where is the criminal activity? What is legally wrong? If all that was known by the SFO, why did it not prosecute? What else is there that could suddenly make what was done a criminal activity?"
	My constituents simply want some security. They want to be assured that the jobs that they have been doing, and doing well, for the past 20 years making military aircraft that have been sold to and flown in Saudi Arabia can continue with the next deal for the Typhoon. Many workers in Brough are waiting for a similar deal on the Hawk. Those workers do not want their jobs to be put at risk by people continuing to stir the pot and besmirch the good name of BAE Systems.

Nigel Evans: If companies and countries could sponsor motions, the motion before the House would certainly be sponsored by all BAE Systems's competitors outside the United Kingdom. The French, the Germans, the Spanish and of course the Americans would rub their hands if they saw the motion. The real winners would be our competitors, and the real losers would be our constituents and those who work for BAE Systems and its suppliers.

David Borrow: Yes, and I cannot really see our opposite numbers in Congress, or in the French National Assembly, having this sort of debate, or their parliamentarians seeking to damage their own defence industries and put their own workers out of jobs.
	The issue does not just affect BAE Systems; that is what causes me ever more concern. The continuation of the campaign is damaging the reputation not of one company, but of the whole defence industry in the UK. Most defence industry companies will not go on the public record and say so, but senior people in many leading defence companies in this country tell me privately that they are beginning to worry about the impact that such campaigns will have, if they continue, on their ability to get orders and keep work for their companies.
	A number of Liberal Democrat Members have major defence companies in their constituencies. They are being carried along by the campaign and the applause of  The Guardian and "Panorama", but they ought sometimes to scratch their heads and wonder whether they are forgetting that the bread and butter of politics is people being in jobs, being able to pay the mortgage, and feeling secure about the future.

Mark Hendrick: I have just heard the accusation made, from a sedentary position, that we are turning a blind eye to the issue, but no one has accused anybody of being guilty. The Liberal Democrats do not have the guts to make a clear allegation—not even in their motion. Let us be clear: there has not been a crime. Any payments made were made over the table, and not under it, as has been alleged by the Liberal Democrats.

David Borrow: The Liberal Democrats have done a lot of mud-slinging at BAE Systems and the Government this afternoon. None of it amounts to anything, but it does damage the reputation of a fine company. I do not think that the Liberal Democrats truly understand the damage that they are doing. They have not come up with a single allegation of criminal wrongdoing, but they insinuate that there has been wrongdoing all the time. Fundamentally, things come down to one key issue: they do not believe that the Serious Fraud Office inquiry should have been stopped. They think that it was wrong of the SFO to stop it, and they do not accept the information that my hon. and learned Friend the Solicitor-General has given to the House. Liberal Democrat Members are nodding their heads; they just do not accept that information, but they have no evidence to justify not accepting it. They simply prefer to go along with certain people in the media and stir things up, hoping that they can continue to damage the Government, without realising that they are damaging the prospects for the continued employment of many of our constituents.

David Howarth: In the final paragraph of his speech—but sadly not in the rest of it—the hon. Member for South Ribble (Mr. Borrow) made some points with which I agree. I shall raise five issues that arise from the events that we are discussing. The first is the damage done to the Serious Fraud Office's, and the country's, reputation for pursuing corruption. That such damage was done was conceded by Mr. Wardle in his evidence to the Select Committee on Constitutional Affairs; he said that "of course" there had been damage. The question now is what we—a country that likes to think of itself as being at the forefront of the fight against corruption across the world—can do to restore our reputation.
	Of course, the one thing that we should not do is refuse to co-operate with other countries that are attempting to investigate the events from their point of view. That is why the issue of investigation by the US Department of Justice is so important: it gives our country an opportunity to show that it is not being evasive, that it is not trying to avoid the truth coming out, and that it wishes, along with other institutions and countries, to pursue corruption.
	My second point is about the position of the Attorney-General. The hon. Member for Huntingdon (Mr. Djanogly) asked why we mentioned that issue in our motion. There are two distinct points to be made, both of which have been referred to already, largely by the Solicitor-General. One is about the Shawcross exercises, and the other is about the Attorney-General's lack of distance from particular decisions to prosecute. As the Solicitor-General said, in the Shawcross exercises, Ministers make their views about the public interest known to prosecutors via the Attorney-General. The problem that arose from the case that we are considering is that until very recently, it was unclear precisely what happened, precisely how many Shawcross exercises there were, and precisely how they were dealt with.
	The first Shawcross exercise was in December 2005. The second, which has only recently come to light, was in September last year, and the third one took place at the turn of the year. Is that the right way for the Government to communicate their views on the public interest to prosecutors? That process needs to be far more open. I welcome the fact that the Solicitor-General said that the case might be the start of providing at least some openness to Parliament. I understand that she said that the underlying points about national security should be revealed to a committee of Privy Councillors—people who could be trusted with the information from a national security point of view. That is a good place to start. The fact that a Shawcross exercise has taken place—but not necessarily all the information in it, which it might not be wise to put in the public domain—ought to be revealed to the House. It should be revealed that the Government have taken a policy decision to make a point to a prosecutor. That point needs to be discussable, at least in general terms, on the Floor of the House.
	I want to discuss the Attorney-General's distance from individual prosecutions and, perhaps more importantly, the confusion about what the Attorney-General's precise role is. The statutory language states that the Attorney-General has "superintendence" over the Director of Public Prosecutions, the director of the Serious Fraud Office and the equivalent in Her Majesty's Revenue and Customs, but what does the word mean? How does the relationship really work? The case that we are discussing illustrates the problem. Here I refer to the Government's response on the judicial review proceedings between the Serious Fraud Office on the one hand, and Corner House Research and Campaign Against Arms Trade on the other. It reveals that in the first Shawcross exercise in December 2005, "The Attorney-General decided" that the investigation should continue. He did so quite properly, because the argument that had been put to him by the Prime Minister was entirely improper. It was an argument based on commercial considerations, which are ruled out by the OECD treaty.

Vera Baird: There was nothing improper about the Prime Minister putting forward his concerns about commercial considerations. What would have been improper would have been for the Attorney-General, in breach of the convention, to take that on. Obviously, the Prime Minister puts forward concerns to Ministers about a range of matters. He is not constrained, as the Attorney-General is, by the OECD treaty, because the decision is taken elsewhere.

David Howarth: That raises an interesting point about the degree to which the Prime Minister is bound by international law, which has all sorts of interesting consequences that I will not go into today but that are important. Nevertheless, the point that I was trying to make was: who made the decision? The decision in December 2005 to continue with the investigations was made by the Attorney-General, and it was the right decision.
	With regard to the September Shawcross exercise, again information comes from Ministers to the Attorney-General, and again the document says that the Attorney-General made the decision. At that point the issue was national security. At that point what was being put to the Attorney-General was that the relationship between this country and Saudi Arabia might be prejudiced and that therefore there might be a national security consequence. At that point, again, the Attorney-General took the decision that the investigation should continue.
	In the final exercise, in December 2006, we are told—there is no reason to disbelieve this—that the director of the SFO, not the Attorney-General, took the decision. Mr. Wardle looks at the papers that have come to him from the Prime Minister's office, from Sir Richard Mottram, and takes the initiative to talk to our ambassador in Saudi Arabia, and at that point, the director decides to call off the prosecution for reasons of national security.
	The Attorney-General does not take that decision; he has a different opinion about the case. His opinion is that not only is national security an important issue, but that the prosecution will not succeed, because he has a different interpretation of the law. Why is it the Attorney-General twice took the decision and the director once? What makes a difference in these decisions? This comes back to the vagueness of the idea of superintendence. That term cannot be the basis in the future of the relationship between the Attorney-General and the director of the DPP. We need far more clarity.

Vera Baird: I too think that the term "superintendence" is vague, but I suspect that the Shawcross exercise was carried out in 2005, it displayed that the only concerns were commercial interest, and therefore the Attorney-General had no advice to offer to the director of the SFO. In that sense, he did decide that nothing should interrupt the prosecution or investigation. Again, clearly, the issues raised about national security cannot have been so compelling that they required the Attorney-General, in his view, to give advice to the SFO on the second occasion either. Therefore, rightly, as the hon. Gentleman says, he decided that the prosecution should go on, but in both cases I think that what he decided was not to give any advice to the director of the SFO. But on the third occasion, he took the decision to do that, and it is at that point that the decision has to be made by the director of the SFO. That is probably what happened, and that is probably nothing other than a very sensible position, and the right one, bearing in mind the nature of the Shawcross exercise, and that that advice is or is not transmitted to the decision maker.

David Howarth: That is a possible interpretation of what happened. It raises the question of what precisely changed the Attorney-General's mind, which was the question I sought to ask early. We still do not know what happened there. It comes back to the point, with which I am glad the Solicitor-General agrees, that "superintendence" is too vague a term to describe this relationship. We need far more specificity about how the prosecution authorities and the Attorney-General relate to one another.
	My third point has been raised on a number of occasions already, and it is the definition of corruption. When hon. Members say no crime has been committed, or there is no proof of any crime, they do not quite understand that the problem here is a legal one, not a factual one. I think that everybody knows what happened—that money moved from the Saudi Government to Saudi officials via somebody else. The question is whether that was a crime. The Attorney-General and the director disagreed about whether that was a crime under existing British law. It is an interesting question, and one that should have been tested in the courts, rather than have been decided abruptly in the way that the Attorney-General might have decided had he been taking the decision, although we are told that he did not.
	But there is a further question on this point. If one reads the OECD treaty and the Corruption Bill, which has passed through all its stages in the other place, there is not much doubt that the events that everyone knows took place are criminal. The question that I want to ask the Government is simply this. The Solicitor-General now says that she is waiting for the Law Commission to report and that she looks forward to a Bill being brought forward, but is it her view, not that that sequence of events is criminal, but that it should be criminal?

David Borrow: The hon. Gentleman has just said that the sequence of events is criminal. Does he mean that the sequence of events would be criminal if the law were amended on the basis of the Lords Bill, or that it is criminal on the basis of the law that obtained at the time that the actions took place?

David Howarth: That raises profound questions that are before the courts about the status of international law in English law. If one follows the definition in the treaty, one would conclude that the actions were unlawful. If one follows the definition in the draft Bill, which is not yet law, one would conclude that the actions were unlawful. As to whether the actions were unlawful at the time depends on how one interprets existing law, and on that there was a profound difference of opinion between the Attorney-General on the one side and the director of the SFO on the other. Ultimately, that is a question that should be decided in the courts, not on the Floor of the House of Commons.
	The fourth issue is the Government's attitude towards international law. One of the most disturbing things to come out of the Government's statement of their case in the judicial review is that they are now saying to the court in that case that even if the treaty were to mean that the case should not have been stopped for reasons of national security in those particular circumstances, the Government would still have gone ahead and stopped the prosecution, even in violation of international law. That is an extraordinary position for the Government to take. It might well be that they are forced into that position by tactical considerations in the litigation, but nevertheless that is the position that they have adopted. It is not a position that the Government of a civilised state should ever adopt.

Mark Hendrick: Who has said that, and where has the hon. Gentleman got that information from?

David Howarth: The statement comes from the Government's summary grounds of resistance on behalf of the defendant in their judicial review case where Corner House Research and the Campaign Against Arms Trade are bringing proceedings against the director of the SFO and BAE Systems. If the hon. Gentleman wants to know the names of the lawyers, I will send him the entire document.

Mark Hendrick: Who said that? I do not want the documents: I want to know who said it on behalf of the Government.

David Howarth: I shall send the hon. Gentleman the documents and he can work it out for himself.  [Interruption.] I do not think that it is right to read out the names of the Government's lawyers on the Floor of the House, although I shall if he carries on asking that question.
	Let me just move on to my final point.  [Interruption.] I do know. Okay, I shall now read out the names of the Government's lawyers. They are Philip Sales QC, Hugo Keith and Karen Steyn, and obviously the instructing solicitor was the Treasury solicitor.

Mark Hendrick: Will the hon. Gentleman give way?

David Howarth: No, I shall not give way to the hon. Gentleman. He never makes any sense, and he does not allow the debate to continue on any rational grounds.
	Let me move on to my final point, which is not a legal point, but a point about the decision that had to be taken. I disagree with those of my colleagues who think that the decision was easy. It was very difficult, but nevertheless, the wrong decision was made. The question is: what should a country do if there is a threat to its national security from the very people who are being investigated for illegality? I do not deny, as some people might, that the threat was real; the question is what does one do if that is the situation that one perceives.
	The Government gave way to the threat, but the other argument is that doing so helps the fight against neither terrorism nor corruption. If that is what happened in this case, it sends out a very dangerous signal. In the long run, there is a greater threat to national security in giving way to such a threat than in resisting it.
	Interestingly, Mr. Wardle told the Constitutional Affairs Committee that from the documents that the director was shown, Sir Richard Mottram did not take that risk into account. Again, it can be seen in Mr. Wardle's evidence to the Committee that it was assumed that none of this would ever come out, and that the whole thing could be swept under the carpet. If that is true, the Government have added incompetence to their weakness of will.

Vera Baird: I am not entirely sure that I follow the hon. Gentleman, but I think that he is suggesting that we should ignore the possibility of a serious threat to public safety in this country and in the middle east because it comes from the quarter being investigated; and that even though we understand the centrality of Saudi Arabia in our counter-terrorist intelligence activities, we should make some bold swashbuckling stand against them like Braveheart, notwithstanding what such action might do to people in this city and throughout the UK.

David Howarth: There are two points: first, what was done was wrong; secondly, it was a mistake. It was wrong because it is wrong to give in to such blackmail. It was a mistake because in the long term, giving into such pressure is a greater threat to national security.

David Borrow: I am just trying to probe the issue. On the basis of the information that the hon. Gentleman has, he has come to a view that Mr. Wardle's decision to halt the inquiry was wrong. However, the hon. Gentleman does not have access to all the information that Mr. Wardle had when he reached that decision, because the hon. Gentleman has not had those meetings with the ambassador to Saudi Arabia that were so crucial to Mr. Wardle reaching that decision. Is the hon. Gentleman absolutely confident that whatever the circumstances and whatever additional information might be available, he would still come to the same view that he holds now?

David Howarth: Since I said some minutes ago that one of the big problems with this issue is the lack of openness and scrutiny of the evidence, of course I cannot be absolutely confident. However, even accepting the uncertainties, there is a case for saying that the wrong decision was made.
	Finally, if one looks at the events in the round, there is an implausibility about them, to use the word that the Solicitor-General picked up on. The implausibility is this: would a country that is our ally in the fight against terrorism take the actions that are currently being attributed to it and threaten the withdrawal of co-operation in the fight against terrorism, because of financial embarrassment? It might be true that they were persuaded that there would not be any effect on their reputation, because it was thought—perhaps on the Government's assurance—that none of this would come out. The other, more disturbing possibility, however, is that the Saudis are perhaps not the principal villains of this piece, and that the Government's main concern is not to conceal wrongdoing by foreign Governments or officials, but to conceal their own incompetence and wrongdoing in this country.

Andrew Tyrie: I shall vote for the motion tonight and I voted for a similar motion in February. Almost all the points that I wanted to make have been made by the hon. Members for Twickenham (Dr. Cable) and for Cambridge (David Howarth), and the latter made some points, particularly his legal points, I had not thought of. I shall therefore make one specific point and then draw some general conclusions.
	In this case, the investigation was brought to an end as a consequence of information provided in a memo, as we have heard again today, prepared by Richard Mottram for the Serious Fraud Office, and as a consequence of a series of oral briefings by the UK ambassador to Saudi Arabia. Robert Wardle provided the Constitutional Affairs Committee, on which I serve, with details of that information when he appeared before it. In this House, none of us, except the Solicitor-General, is in any position to judge whether the correct decision was taken on the basis of that information. We have not seen the memorandum, and we have not heard what the ambassador said. However, the Intelligence and Security Committee can see the material, and it can also summon witnesses, including the ambassador. That is why I strongly support the view that that Committee should consider the matter, and why I suggested that it investigate and report back to Parliament. That is what it exists to do.
	I encouraged the right hon. Member for Berwick-upon-Tweed (Mr. Beith), the Chairman of the Constitutional Affairs Committee, to write to the Intelligence and Security Committee, on which he also serves as a member, asking it to initiate that investigation. We have not yet had a reply. On the basis of such an investigation, we might receive some reassurance about whether the decision was taken on a reasonable interpretation of the evidence. I welcome the Solicitor-General's remarks about the need to strengthen parliamentary scrutiny of the security services and the information that they provide.
	I have the same intuitive doubts about the security arguments as the hon. Member for Cambridge. It strikes me as implausible—to use a word that, although widely ridiculed in the House, is a perfectly reasonable expression of something short of certainty—that the Saudi Arabians would want to cut off their noses to spite their faces. They must realise that if they were to cut off co-operation with us, we might be less keen to supply them with information collected here, which is valuable to them in dealing with al-Qaeda domestically.
	Incidentally, I am disappointed that the Quadripartite Committee, which was specifically set up to consider such issues in the light of legislation put on the statute book five or six years ago, has failed to announce that it will take a look at the issue—I hope that someone is listening to that remark.
	My remaining quick remarks relate to a number of suggestions made by the hon. Member for South Ribble (Mr. Borrow). He has strongly implied that the decision not to go ahead with the investigation is justifiable on commercial grounds. The right hon. Member for Warley (Mr. Spellar) made that point in February, and my hon. Friend the Member for Aldershot (Mr. Howarth) has made a similar point. Those hon. Members have repeatedly sought to justify the decision not to take the matter any further on the grounds that jobs—in particular, jobs in their constituencies—are at stake. I understand that hon. Members who have constituencies where jobs are at risk want to make those points, but that does not constitute an argument for not investigating the matter further.

David Borrow: My argument is not that the investigation should be halted because of the number of jobs at stake; it is that because the investigation has been stopped on proper and appropriate legal grounds, those who object to and disagree with the decision are putting employment in the defence industry at risk by continuing to challenge the decision and publicise their opposition to it.

Andrew Tyrie: In saying that, the hon. Gentleman is also lining up for criticism the director of the SFO, who has made it clear that he is disappointed that the investigation is not proceeding. In any case, a number of other hon. Members have made the point to which I have alluded and which the hon. Gentleman has qualified—it is all available in  Hansard.

Mark Hendrick: Will the hon. Gentleman give way?

Andrew Tyrie: In view of the number of interventions that the hon. Gentleman has made that added nothing, I am reluctant to give way, but on this occasion I will do so.

Mark Hendrick: I thank the hon. Gentleman for his extreme generosity. A number of hon. Members were concerned about the impact on jobs, but that was only a collateral issue. The key issue is clearly national security. The longer that Liberal Democrat Members and people such as the hon. Gentleman pursue this media campaign, the more damage will be caused not only to jobs, but, if the Liberal Democrats and the hon. Gentleman have their way, national security.

Andrew Tyrie: It is important that we weigh in the balance the arguments on national security by asking the Intelligence and Security Committee to consider them and to report to Parliament, and I hope that it will do so.
	The hon. Gentleman described the jobs argument as "a collateral issue", but either there are or there are not commercial considerations that should be taken into account. If it was right to take those considerations into account—I do not agree that this is the right approach—I have not seen a thorough assessment of the value for money of that huge deal. I do not know the extent to which the British taxpayer has subsidised the deal, and I do not think that anyone present in the Chamber knows, either.
	Nor am I aware of any estimate of the commercial cost of the risk that is sitting on the Export Credits Guarantee Department's books as a consequence of the deal—if anyone has seen an estimate, I would be interested to hear about it. The ECGD's accounts are still, after many years of pressure for reform, opaque. In my view, when a default comes through on the ECGD, it should score not against the public sector financial deficit, but as public expenditure against the budget of a particular Department. That would allow us to compare the value of that credit guarantee against other forms of public expenditure in which that Department is engaged. We need much more transparency in the work of the ECGD, because deep in the recesses of how the arms industry is conducted lies a worrying lack of transparency.

Lynne Featherstone: Will the hon. Gentleman give way?

Andrew Tyrie: If the hon. Lady will forgive me, I will not do so on this occasion, because, first, I am about to conclude and, secondly, the winding-up speeches are about to begin.
	I want to finish the point about jobs. I have mentioned the ECGD and the fact that we do not know what other subsidies financed the deal. One thing that we learned in the 1970s is that propping up jobs by Government subsidy—throwing public money at them—is always a counter-productive waste of money in the long run, which is why such subsidies were largely wound up in the 1980s. The arms industry has, to some degree, succeeded in exempting itself from the full pressures of the commercial marketplace, which concerns me.
	Finally, has this issue now been put to bed? I think not, for two reasons. First, it is likely that the US authorities will pursue the matter and that the damage to BAE Systems will persist, which will in turn continue to harm Britain's reputation. Secondly—this point has not been raised in today's debate—the security considerations that led to the decision may change. Are we sure that the Saudi regime will always maintain its threat to close down security co-operation if the investigation is reopened? If and when there is a shift in the Saudi position on the deal, which has many years to run, the SFO is at liberty to reopen the investigation. Indeed, in response to a question from me on exactly that, Robert Wardle said in the Committee that his office will keep under review the assessment of the national security risk.
	The issue has not finally gone away, and it has not finally been put to bed. It is a matter for debate whether we are in a better position than we would have been had the investigation been allowed to continue. What have we really gained by terminating the investigation? Well, we have gained some time. Are we more secure as a result? It has been asserted that we are, but I would like the Intelligence and Security Committee's reassurance on that point. Are economic benefits being secured? I would be very surprised if the balance of benefits and costs of the deal as a whole is clear-cut, but, again, I do not have the information—the fact that the PAC report has not been published makes such a judgment more difficult. There is also the question of damage to reputation, where nothing has been gained and almost certainly quite a lot of damage has been done. Overall, did the Government make a mistake? It is difficult to tell, but I will not form my judgment until an Intelligence and Security Committee investigation has taken place and we have debated it.

Michael Moore: It is a pleasure to follow the hon. Member for Chichester (Mr. Tyrie), who made many points that I might otherwise have raised. A relatively short period of the debate remains, and I will make sure that the Minister gets plenty of time to cover the main issues and some of the points that the Solicitor-General did not address earlier.
	I want to pick up some of the contributions to the debate. My hon. Friend the Member for Cambridge (David Howarth) set out a forensic examination of the Attorney-General's role. I am disappointed that, unlike the hon. Member for Chichester, Conservative Front Benchers and others will not support us in the Lobby in a few moments' time. However, we welcome the fact that the Conservative spokesman, the hon. Member for Huntingdon (Mr. Djanogly), set out his party's concern about many of the issues and the fact that procedures need to be tightened. He was also right to spend a bit of time on the issues arising out of the deal with Tanzania—a matter that my hon. Friend the Member for North Norfolk (Norman Lamb) has pursued doggedly for a number of years and is still asking questions about.
	As well as the speech by the hon. Member for South Ribble (Mr. Borrow), there have been several interventions in which Members have understandably, and rightly, considered the economic aspects of this and the jobs that they believe may be at stake. The hon. Member for Chichester set out some of the genuine concerns that we as parliamentarians must raise about the use of public money for some of these contracts. It is unfortunate if those of us asking questions are to be tarred as being somehow against jobs, because that is far from the truth. However, I do not dispute the right of the hon. Member for South Ribble and others to make the case for their constituents.

Lynne Featherstone: Given the very limited number of players in the field capable of supplying massive arms contracts, does my hon. Friend agree that if there were a strong international will in all countries, from Governments down to suppliers, to cut out corruption, the business would still be there but costs to businesses would be cut because corruption would be cut?

Michael Moore: My hon. Friend raises an important point about the importance of international agreements and arrangements—a matter that has been discussed in the course of this debate and that we must keep scrutinising in this House and elsewhere.
	We have not questioned the integrity of officials or of right hon. and hon. Members. We have asked questions, legitimately, about the roles that certain individuals have played, but we have not questioned their integrity. However, we do question the integrity of the processes by which we in this place are able to scrutinise the Government, and therefore make no apology for the fact that we have returned to this subject less than six months after we last introduced a debate on it. The issues are of such magnitude, and Parliament's need to scrutinise them is so serious, that we are happy to have provided another rare opportunity for debating them.
	Several issues have been raised in the past couple of hours. My hon. Friend the Member for Twickenham (Dr. Cable), who set out our case at the start of the debate, advanced the arguments relating to al-Yamamah in detail, so I will not repeat them in the brief time available to me. On the other investigations, I am grateful to the Solicitor-General for setting out a summary of where she understands them to be going. She has dismissed all our inquiries as mere innuendo, in which respect she follows her predecessor, who used a similar tactic in the previous debate. For the purposes of this debate, let us accept that on the Government Benches attack is the best form of defence.

Greg Mulholland: Does my hon. Friend recognise a wider point concerning the Government's astonishing arrogance in not acknowledging the real shame that this has brought on the country? To give one example from the foreign press,  The Hindu said, on 11 June:
	"What is more shameful, is that it is being defended by a government that is supposed to be spearheading a campaign against corruption in developing countries and never tires of lecturing African and Asian leaders."
	Is it not true that damage is being done and that the message is, "One rule for the rich nations and one for the poor"?

Michael Moore: My hon. Friend raises an important issue about Britain's reputation on the world stage—one that the Foreign Affairs Committee highlighted in its recent report on human rights, which concluded:
	"the Government's decision to halt the inquiry into the al Yamamah arms deal may have caused severe damage to the reputation of the United Kingdom in the fight against corruption."
	In their response to the report, the Government asserted that the Organisation for Economic Co-operation and Development working group "welcomed the UK's openness" in their meetings with the group. Well, yes, it would. However, their response plays down the group's remaining concerns, and they have not fairly represented the seriousness of the views held by the OECD. Let us remember that following the March 2007 meeting at which the SFO inquiry was discussed with the UK representatives, the working group stated that it
	"reaffirmed its serious concerns about the United Kingdom's discontinuation of the BAE Al Yamamah investigation and outlined the continued shortcomings in UK Anti-Bribery legislation. It urged the UK to remedy these shortcomings as quickly as possible and decided to conduct a further examination of the UK's efforts to fight bribery."
	That is where we stand in the international dock. Our reputation as a country is surely at stake, as this investigation makes clear.
	Perhaps more immediately, our relationships with key partners are also at stake. In this regard, we all understand the importance of our relationship with Saudi Arabia. Beyond the economic significance of our links in oil, industry and services, we have common interests in the safety of the region and the development of a middle east peace plan. Nobody can deny the significance of the ties in relation to security co-operation. In our February debate on this matter, the Minister for the Middle East, whom we are pleased to see still in his place, underlined that with appropriate conviction:
	"Saudi Arabia has its own problems with al-Qaeda—there is no question about that—yet much of the money for al-Qaeda also comes from Saudi Arabia".
	After giving an appropriate example of the links between Saudi dissidents and al-Qaeda, he said:
	"We ignore that fact at our peril. It is extremely important to recognise that we need the co-operation of the Saudis in these matters. It must be a very important consideration."—[ Official Report, 7 February 2007; Vol. 456, c. 907.]
	I agree with him wholeheartedly on that. He rightly went on to remind us that UK citizens have been the victims of terrorist attacks in the region and that British co-operation with the Saudis is therefore critical. However, just before that section of his speech, he pointed out the needs of the Saudis themselves:
	"There is a high threat of terrorism in Saudi Arabia. Attacks have taken various forms. At their height in 2003 and 2004, they included kidnappings, large-scale truck bombings of residential compounds and Saudi Government offices, an attack on the US consulate in Jeddah, targeted shootings of individuals, small-scale car bombings, parcel bombings and the bombing of shopping areas."—[ Official Report, 7 February 2007; Vol. 456, c. 906.]
	The pressures on the Saudis are enormous, and it seems self-evident that they need our co-operation at least as much as we need theirs.
	That issue has not been properly explained, and I hope that the Minister will take the opportunity to do so in a few moments. How formal were these warnings from the Saudis? Were not the Government outraged when, out of the blue, we were suddenly being told that important security co-operation that matters to both our countries was to be withdrawn merely on the basis of a particular SFO inquiry? Has the Foreign and Commonwealth Office used every available channel to protest about these crude tactics by an important partner? If it has, and it has been unsuccessful, what on earth does that now say about our relationship with the Saudis that those proceedings did not work? Separately, we can attack this by asking how credible those threats were, and what discussions there were at that time about the loss that the Saudis would suffer from breaking those links. I hope that the Minister will be able to tell us what reappraisal has been forced on the UK on the strength of these experiences and what that now says about our broader relationship with the Saudis.
	This issue has spilled over into the Atlantic. We now know that the Ministry of Justice is carrying out its own investigation. I welcome the fact that the Solicitor-General said earlier that the Home Office has received a formal request and that that co-operation is proceeding. What further discussions are taking place with the FCO or the Ministry of Defence on what part they are going to play in this?
	The sale of arms will always be secretive, by its very nature, and it is necessarily so. Great issues of national security are at stake and the economic value of arms exports is crucial to us as a country. Equally, our relationships with partners to whom we sell aircraft, tanks or whatever, matter greatly. Of course, there are separate significant issues relating to national security bound up with those relationships. We cannot ignore any of that, but nor should we in Parliament ignore our responsibility to scrutinise such issues, and to ensure that Government policies are right and their implementation appropriate.

Kim Howells: Despite the subject of the debate, which is very wide-ranging—"The investigation of alleged corruption overseas"—much of it has focused on the decision by the director of the Serious Fraud Office to drop the fraud investigation into BAE Systems. There is only so much I can add to that discussion, and my hon. and learned Friend the Solicitor-General has dealt carefully and in great depth with the events that led the director to make his decision. As my hon. and learned Friend said at the start, that decision was made by the director alone, although—we have always been very open about this—representations were made to him about the need to safeguard national and international security.
	It is difficult to imagine what alternative path he, and we, should have taken. The Government were given good reason to believe that there is a real and present danger to their security and intelligence co-operation with a country that plays a vital role in helping us to ensure the safety of our citizens from threats posed, among others, by al-Qaeda terrorism. I have been working with our middle eastern partners for long enough to assure the House that the Kingdom of Saudi Arabia is a key partner in tackling al-Qaeda threats to the lives of British nationals and other civilians at home and abroad.
	It would have been wholly irresponsible of us to have ignored that information. It would have been wholly wrong not to make the Serious Fraud Office aware of it, and it made a decision based on that evidence. It was not an easy decision, and I do not think that anyone here today claimed that it was. Of course it was not; the investigation was not begun with the intention of calling it off further down the line. However, on balance, it was the right decision, and we are confident that it was compatible with the OECD convention. It has been implied this afternoon that we have set a precedent by the decision of the director, Robert Wardle. We have not. Faced with the same set of circumstances and the same evidence of the implications for national and international security, we would make the same representations to the SFO. The idea that there is now a carte blanche for companies from this country to bribe at will is patently absurd, and I urge colleagues to think hard before throwing the sort of allegations around that imply otherwise—some of which we have heard today.
	As my hon. and learned Friend the Solicitor-General has told us, the SFO is pursuing other investigations vigorously, including some, as she reminded us, into BAE Systems. We have made it quite clear that no company or individual is above the law. We expect high standards of business conduct, and compliance with the law of the United Kingdom and that of the countries in which they operate, from all UK defence companies. We expect those high standards to be observed in any future contract in respect of defence sales to Saudi Arabia. We would expect the high standards operated by British companies to be recognised and respected by Members of this House from all parties.
	Companies such as BAE Systems are very much aware that their world-leading products and services need the benefits that a good reputation bring in international sales. They also know, and it is a sharp reminder to all of us, that convictions for corruption in this country can mean a seven-year jail sentence and/or an unlimited fine. That should focus everybody's minds.
	The Government are second to none in the transparency and rigour of their regulation of arms exports and dual-use goods. I remind the House that before manufacturers are allowed to export, they submit applications for export licences to the Department of Trade and Industry, as it was. Hon. Members will excuse me if I cannot remember what the new Department is called —[ Interruption. ] I believe it is DBERR—the Department for Business, Enterprise and Regulatory Reform. The Department consults Whitehall—the Foreign Office, the Department for International Development and the Ministry of Defence—to check whether an export is legal and consistent with the United Kingdom's obligations. We abide rigorously by the consolidated EU and national arms export licensing criteria. The earlier implication, therefore, that we are somehow not up to the mark internationally, is completely spurious.
	Since the debate is—nominally at least—about the wider issues of corruption and bribery, it is worth reminding ourselves of the Government's record on the issues. The fact is that in the past 10 years, the world has moved on a great deal from a time when many powerful Governments and businesses turned a blind eye to practices such as bribery and kickbacks. There is now a global coalition of non-governmental organisations, consumers, Governments and companies helping to put the frameworks and mechanisms in place to stamp such practices out. The United Kingdom's role in that shift has been considerable, involving activities and alliances that are designed to root out corrupt behaviour.
	We are pushing for the implementation of the United Nations convention against corruption. The provisions on improving international co-operation and on asset recovery are particularly important. We are implementing the third European Union directive on money-laundering to make it even harder to move criminal money, including looted assets, through our financial system. The Department for International Development has put £6 million into strengthening the UK's law enforcement capacity to investigate allegations of foreign bribery and the laundering of corrupt assets by political elites.

Geoffrey Clifton-Brown: One of the more constructive comments to come out of this debate was that of the Solicitor-General on the need to strengthen the law on bribery and corruption. Would the Minister give us more of an idea of the timetable for that legislation?

Kim Howells: As my hon. and learned Friend the Solicitor-General told us earlier, this is an important matter. She accepted some guilt for slowing the process because she wanted to be vigorous in the examination of proposed legislation. Like the hon. Gentleman, whose views I very much respect, I would like to see the process move more quickly than it has, and I hope that what we have heard during the debate helps to do that. I understand that the pre-legislative scrutiny Committee took a lot of time over the matter, and did not much like the shape of the proposed legislation. It has to take another look at it, but I very much agree with the hon. Gentleman; it is a priority, and it must go ahead quickly.
	We have been working with Transparency International on funding elements of a major anti-corruption programme in south Asia, focusing on improving transparency in public procurement. Of course, it is this Government who have shown long-running leadership on the extracted industries transparency initiative. We were involved with the beginning of the Kimberley process to stamp out "conflict" or "blood" diamonds, and that has brought results. The Extractive Industries Transparency Initiative is widely recognised as the international standard for the management of public revenues from oil, gas and mining.
	Our support for the work of the Nigerian Economic and Financial Crimes Commission has helped it to become the most successful anti-corruption body in Africa, reporting more than 150 convictions and the recovery of $5 billion since 2002. There is also the Kenya textbook project, where we transferred funds to individual school bank accounts, so that money was more likely to go towards education and less likely to be siphoned off along the way.
	I believe that probably no Government in the world have a better record than ours on fighting bribery and corruption world wide. It is damaging nonsense to claim that the Serious Fraud Office's decision to discontinue a single investigation because of our concern to safeguard national and international security has undermined all that work.
	Transparency International's latest independent analysis says that the United Kingdom ranks as the least corrupt of the G7 countries. I am not sure whether that is damning with faint praise but it says something. We are not complacent about the challenges in the United Kingdom or abroad, and we will take them up with energy and determination.
	The hon. Member for Twickenham (Dr. Cable) made his usual statement at the beginning of the debate. He is, of course, a great master of dubious poetic phrases and he has a resilient mud-throwing arm. Today, he spoke about money, and we heard that the Government's money is not allocated, spent or exchanged but "swills around". He is a great expert at diving into the swill tub. He throws its contents at any convenient target, regardless of the impact of his efforts. This afternoon, he threw some at Sir Richard Mottram's reputation by implying that he is part of a conspiracy that dates back to the al-Yamamah arrangements. He did that despite the fact that Sir Richard is one of our most distinguished and respected public servants, who has played a crucial role in helping this country reconfigure and strengthen our defences against the real and present danger that terrorists within and beyond our shores pose to the United Kingdom.
	I therefore hope that hon. Members will vote against the absurd Liberal motion and support the Government amendment.
	 Question put, That the original words stand part of the Question:—
	 The House proceeded to a Division.

Mr. Deputy Speaker: I ask the Serjeant at Arms to investigate the delay in the No Lobby.

The House having divided: Ayes 46, Noes 284.

Question accordingly negatived.
	 Question, That the proposed words be there added,  put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):—
	 The House proceeded to a Division.

Mr. Deputy Speaker: I ask the Serjeant at Arms to investigate the delay in the Aye Lobby.

The House having divided: Ayes 266, Noes 45.

Question accordingly agreed to.
	Mr. Deputy Speaker  forthwith declared the main Question, as amended, to be agreed to.
	 Resolved,
	That this House supports the Government's stance against international corruption; welcomes the action it is taking to tackle it; and recognises that the decision to discontinue the Serious Fraud Office (SFO) investigation into BAE Systems plc and Saudi Arabia was taken by the Director of the SFO alone for reasons of national and international security.

Fair Taxation of the Wealthy

Mr. Deputy Speaker: I must announce that Mr. Speaker has selected the amendment in the name of the Prime Minister.

Vincent Cable: I beg to move,
	That this House notes with concern the growing gap in wealth and income inequality since 1997; calls for the publication of Office of National Statistics wealth inequality data since 2003; regrets that the complexities of the tax system allow wealthy individuals to utilise tax loopholes; notes with alarm the increasing number of wealthy individuals who are non-domiciled for tax purposes; recognises the increasing burden that this places on middle-income families who are disproportionately affected by, in particular, stamp duty and inheritance tax thresholds, given that these thresholds have not been recently re-assessed to reflect large increases in house prices; and proposes the tax system be amended to ensure that the wealthiest individuals pay their fair share.
	I am grateful for the opportunity to introduce a debate on this subject on behalf of my Liberal Democrat colleagues. I am also grateful to House of Commons staff who, after much deliberation, admitted the word "fair", which I believe was quite controversial.
	There are usually two broad approaches to debates on taxation. One is the argument about the level of taxation in the economy. Indeed, arguments have raged backwards and forwards between the parties as to whether as a country we are over-taxed or under-taxed. This debate is not about that subject. As I understand it, although the Conservatives approach the problem from the opposite direction, they broadly accept the current share of taxation in the economy, at least as an initial starting point, and are arguing about whether tax should be applied in a more sensible and equitable way. We believe that within the current level of taxation it would be possible to have a system that is fairer, simpler and greener. I want to focus on the first of those—the concept of fairness, by which I mean paying greater attention to the distribution of income and wealth.
	To introduce some precision to the concept of fairness, it would probably help at the outset to monitor some of the recent trends in income and wealth distribution. It is fairly clear that since the Government came to power in 1997, income distribution as measured by the standard Gini coefficient initially deteriorated. It was rather odd that the Government were talking about fairness and equality after a long period of Conservative Government, yet for a considerable time income inequality widened. Subsequently, it has levelled off and is now roughly back to where it was in 1997. I guess that one of the major contributory factors was tax credits. Although Members on these Benches and on the Opposition Benches generally have been very critical of the tax credit system because of its administrative failings, there is little doubt that many people have benefited from it and it has contributed to the stabilisation, at least, of the income inequality measure.
	The distribution of wealth, however, has become significantly worse. If we track the share of marketable assets held by the top 1 per cent., 5 per cent. or 10 per cent. of the population, we find that their share increased from 1997 to 2003 while the share of the bottom 50 per cent. shrank. Unfortunately, we cannot track what happened since 2003 because the Government no longer publish the data. They say that there are "methodological problems" with that. It is a tricky thing to measure, so I will be generous and acknowledge that that could be the reason, but it could also be rather embarrassing and so they do not wish to publish such data. None the less, we do not have data beyond that date. Such as we have suggest that the distribution of wealth was deteriorating during the Government's first six years in office.
	The context in which we can assess the trends in income and wealth is difficult because of broader global trends. However progressive any Government wish to be, it is difficult to maintain an approach to income and wealth equality of the kind that was possible in more closed economies. We now have virtual freedom of movement of capital, and capital migrates to areas with the highest rates of return—that is the way the market works. That is true also of many people with high levels of skill and entrepreneurial ability; they pursue the best returns. It is probably also true that, because of the large-scale entry of China and, to some extent, India to the world economy, real wages have come under pressure everywhere. It is difficult for any Government in any circumstances to maintain very close levels of equality in an open economy. I start out by recognising that.
	For that reason, it is probably best to look at comparative measures of how other rich countries perform. I recently dug out some data on the distribution of wealth. There is not a great deal of it around and it is difficult to compile. One set produced by the Central Intelligence Agency—perhaps an original source—which was put together by the Economic and Social Research Council, shows that although Britain has a more equal distribution than the United States, it has a substantially less equal distribution of family wealth than almost every other developed country. It is much worse than Scandinavia, France, Germany and most eastern and southern European countries. The same relative conclusion is reached in a parallel study carried out by an organisation called WIDER—the World Institute for Development Economics Research—which I believe is linked to the United Nations university.
	Although it is understandable that because of the mobility of capital and skilled labour and the pressure of labour competition through trade, equality of income and wealth are under pressure, Britain seems to have become a relatively unequal country. One can reasonably ask that the Government do not pursue policies that make those disparities worse. I would like to concentrate on several of those policies, related specifically to taxation as it applies to wealth. We do not have a wealth tax in this country—it is probably no longer a practical concept, though the Swedes and French have tried it—but we have proxy taxes for wealth. We have taxes on capital gains, and taxes on stamp duty and inheritance, so I want to consider how those systems work and particularly some of the exemptions for non-domiciled investors—one of the main concessional areas of tax policy. There are, of course, much wider aspects of tax policy relating to income tax, tax credits and council tax, which colleagues and others might wish to refer to, but I will narrow my remarks to the areas that I have defined.

John Redwood: Will the hon. Gentleman explain how it would be fairer to impose a poll tax or rubbish tax on people on low incomes in addition to their local income tax, which he proposes? Why would it be fairer to charge small businesses extra business rates if there happens to be an improvement in their neighbourhood that they could not control and that does not benefit them? Under the hon. Gentleman's supplementary business rate proposals, that would mean a big leap in their business taxes.

Vincent Cable: I am not quite sure where the right hon. Gentleman has got the idea that we are proposing a poll tax on people on low incomes. He has wholly misunderstood that. The only taxation relating to individuals that we propose is the complete elimination of the council tax system and its replacement by local taxation based on ability to pay.

John Redwood: The hon. Gentleman should read section 4.0.12 of his document, "Reducing the Burden", which states that Liberal Democrats "support giving authorities" the "powers to introduce" rubbish taxes.

Vincent Cable: If the right hon. Gentleman read the document more carefully, he would discover that—if he is talking about the collection system, which has been controversial in the Communities and Local Government Committee—we are in favour of giving local authorities discretion. Surely the right hon. Gentleman, who I know is a highly economically literate man, would accept that where there are pollution and externalities, they have to be properly charged for. That applies to waste disposal as to other things.
	The first of the major exemptions given by the Government is in relation to capital gains tax. In 1997, the system inherited from the noble Lord Lawson had the merit of simplicity, as capital gains were taxed at the same rate as income. The system worked reasonably well and was accepted by businesses as providing reasonable incentives. I recall—the right hon. Member for Wokingham (Mr. Redwood) is probably the only other Member present who was part of the discussions—that a radical change in the capital gains tax regime was introduced by the hon. Member for Coventry, North-West (Mr. Robinson).
	The key new concept was taper relief, whereby individuals and businesses should be granted relief depending on the length of time that they held on to their assets. That was severely criticised at the time, certainly by the Liberal Democrats, and, I believe, by the Conservatives too. The argument was advanced that the concession would prove to be very expensive, that businesses would find ways of collecting the relief without changing their behaviour, and that trying to use taxation in that way would eventually prove counter-productive. In retrospect, we know that businesses have taken enormous advantage of the taper relief rules in ways that are quite unconnected with the original intentions to encourage ventures and to encourage individuals to hold their assets for long periods, to reduce what was called the "churning" of investment.
	The issue has surfaced in the context of so-called private equity companies. I shall not use this debate as an opportunity to speak for or against that form of corporate governance—there are arguments for and against it—as it is not the right context. Some of those companies, however, have availed themselves of generous tax relief, and have created the situation in which they hold on to assets as a result of carried interest for several years—two years if they are classified as a business—and pay as little as 10 per cent. in tax. That gave rise to the popular story about private equity companies paying tax at 10p in the pound, and their cleaners paying tax at 20p in the pound.
	Criticism has come from outside the industry, some of which is well informed and some less so, but it is worth quoting one of the leading advocates of that method of corporate governance, Jon Moulton, of Alchemy Partners, who has been doing that kind of business for many years. He said in relation to his own business:
	"in this country, the exchequer loses out. The chancellor should be thinking again about the tax revenue he loses"
	as a result of leveraged buy-outs. He acknowledges the enormous cost to the Exchequer of the concession that his industry has been granted.
	One could argue that that problem could be dealt with selectively. There was a memorandum of understanding under which that form of carried interest was allowed tax relief, and that could simply be closed and dealt with on a selective basis. That would probably be unfair to the private equity industry, however, as such companies are only one of several types of company taking advantage of such a generous loophole.
	To give an example that has nothing to do with private equity, in  Property Week a few weeks ago, the retiring chairman of British Land, Mr. Ritblat, described his experience:
	"The reason why I sold the shares is terribly simple. The benefit of business asset taper relief when you are still the employee of a company is colossal, the difference of 10 per cent. tax to 40 per cent. Selling them now means I save £20 million in tax. Tell me one person who wouldn't want to save themselves £20 million?"
	He was not claiming in any sense that he had contributed to entrepreneurial endeavour; he had simply found a way of managing his property portfolio in a way that saved himself enormous amounts of tax as a result of the Government's taper relief concession. We would argue that that tax relief has been grossly, excessively generous, with very little positive economic outcome. It is a strange form of tax, as the total tax yield to the Government—£4 billion—is considerably less than the Government's own estimate of the value of the relief, which is £6 billion. We would argue for going back to the much simpler system that the Government inherited in 1997.
	The second group of tax measures that I want to discuss is those relating to non-domiciled investors. The concept has been around for roughly two centuries—since income tax was introduced. From its inception, it was understood that it would be fair and an encouragement to the City of London, which was then in its embryonic form, for people to be taxed on their income in Britain but not on the income that they accrue overseas if they have good claims to be non-domiciled and not to have strong, traditional connections with this country. That developed in an ad hoc way, and was formalised first after the first world war, and secondly after the second world war.
	It is clear that that system has caused some dissatisfaction, probably expressed most cogently and aggressively by the current Prime Minister when he was the shadow Chancellor of the Exchequer. In 1994, he undertook to close the loophole under which
	"those who are non-domiciled are able to live in the UK free of tax".
	He did not lose sight of that concern: in the pre-Budget report of 2002, he returned to the subject. He argued that we need to revisit the question:
	"It is generally accepted as fair that those with a long-term connection"
	to a country
	"owe a special obligation to support the social structures of the state."
	He initiated an inquiry into the non-domicile tax regime in the following terms:
	"the current rules determining residence and domicile have developed over the past 200 years, are complex and poorly understood, and do not reflect the reality of today's more integrated world".
	He initiated an inquiry in the Treasury with a view to tightening up those rules.
	The spirit of the age was also expressed by Mr. Peter Mandelson, as we can now call him, who described the new Government as "intensely relaxed" about people getting filthy rich, as long as they paid taxes. He was anxious that the Government should close down the loopholes.
	The question arises: how do the loopholes operate, and do they operate entirely in accord with the spirit of non-domicile?

Steve Webb: My hon. Friend mentions the comment about being relaxed about the wealthy getting even wealthier. Does he recall the then Prime Minister being interviewed on "Newsnight", being pressed repeatedly on whether it was a bad thing that the gap between the rich and poor was growing, and serially evading the question? Given that our debate is about fairness in the tax system, is my hon. Friend as relaxed as Mr. Mandelson about that gap, or does he think that there comes a point beyond which gross inequalities are damaging to society?

Vincent Cable: I am not relaxed about that matter, as it is a subject of legitimate concern. There are two issues: one is whether one is relaxed about inequality; the other, about which Mr. Mandelson was quite right, is that one can be more relaxed, providing that the very wealthy pay their share of tax. In many non-domicile cases, it seems that tax is not being paid that should have been paid, at least if the spirit of the system was being observed. Let me describe one or two different ways in which the system now operates so that capital gain that accrues in the UK does not carry taxation.
	We need only consider the evidence given by tax advisers, who are often quite public and free with their advice. Mr. Andrew Tailby-Faulkes, a tax partner at Ernst and Young, described some of the mechanisms currently employed.
	First,
	"For... residents who remain foreign domiciles it is possible to set up dual contracts for work in the UK and overseas, again with the overseas portion not taxable unless remitted to the UK."
	That is a common practice among people who are in the City for several years. Another tax adviser, Lee Hadnum, author of "Non Resident and Offshore Tax Planning", describes preferential tax treatment as
	"a fantastic tax break because it means that your investments can grow (offshore) tax-free for many years and potentially indefinitely".
	One of the technical aspects is the opportunity, which is increasingly being sought, for non-domiciles to accrue capital gains in the United Kingdom on which they do not pay tax. One of the reasons is that the tax avoidance principles do not apply to non-domiciles in relation to capital gains tax, and it is therefore relatively easy to shift capital gains tax into overseas trusts.
	A third example, although tricky and technical, illustrates the opportunities that are now becoming available. It has generally been assumed that while it is possible for non-domiciles to find a way of not paying income tax and capital gains tax, inheritance tax is payable and is paid. One tax adviser, however, has described the mechanisms that are developing to prevent its being paid.

Philip Hammond: The hon. Gentleman speaks of taxes that it is difficult or impossible for non-domiciles to evade. Will he confirm that the one tax that they cannot avoid paying is the council tax that he proposes to abolish?

Vincent Cable: We are talking about people who are extraordinarily rich. The amount paid in capital gains tax is so trivial that it hardly makes a difference to the sums we are describing. If one is Mr. Mittal and one has just bought a £50 million house, paying £1,500 to the local council hardly constitutes a major contribution to British revenue.

Andrew George: The Conservatives introduced a council tax system under which £150 million a year was used to subsidise second homes for the wealthy when many thousands of people in constituencies like mine did not have a first home. Does my hon. Friend agree that, in contrast to the Conservatives, we need to think of ways of introducing a fair system to ensure that where scarce housing must be rationed, it is given to those who need it rather than to the wealthy who simply take advantage of second homes for investment purposes?

Vincent Cable: My hon. Friend is right, and he has helpfully prompted me to mention something that I omitted from my remarks about capital gains tax taper relief. Clearly if people buy property and hold it for 10 years as individuals—if not as companies—and resell it as an investment, that not only bids up prices in areas such as his, but provides a substantial tax shelter for the individuals concerned.

David Taylor: The hon. Member for Runnymede and Weybridge (Mr. Hammond) implied that payment of council tax by the rich somehow compensated for their avoidance of other taxes on a grand scale. Someone in a property in this borough of Westminster—the one owned by the Mittals, say, which is worth £48 million—paying band H council tax is probably paying less than an ordinary working person in a band D house in North-West Leicestershire. That is not much of a compensation, is it?

Vincent Cable: The hon. Gentleman has made my point for me, in a striking way.

John Redwood: Does the hon. Gentleman also think it unfair that well-off people who are legally settled in Britain and paying taxes here can buy every new issue of national savings and accumulate a very large sum which is entirely free from tax on income and capital gains? Does he want to stop that as well?

Vincent Cable: To be honest, I have not reflected on the concession that is given. I would rather reflect on it than attempt a glib answer, and as that was an interesting question, I shall do so.

Philip Hammond: I am grateful to the hon. Gentleman for his generosity in allowing a series of interventions. May I return to his point about taper relief on non-business assets over 10 years? Does he recognise that within that gain, in the absence of indexation, is a significant element of inflationary gain? Will he comment on his party's proposals, which involve taxing what is a purely inflationary gain at the end of that period?

Vincent Cable: It is true that in the report we published we did not set out how an inflation taper system might operate. I certainly accept intellectually that inflation should be compensated for in some way, and when we are called on to set out our policy in more detail, we shall describe how that can be done.
	I also acknowledge, as the hon. Gentleman has raised this broader question, that when it comes to capital gains tax there are certain benefits from the taper relief. It was designed to encourage particular types of company. Defending the position that I am taking, Lady Noakes, a Conservative spokesman on these matters, inquired in another place:
	"My Lords, does the Minister agree that some of the tax incentives utilised by private equity were designed to support and encourage real venture capital? If he agrees, can he explain why investment in early-stage companies has declined from 10 per cent in 1998 to 2 per cent in 2005?"—[ Official Report, House of Lords, 10 July 2007; Vol. 693, c. 1285.]
	The original objectives of the concession have clearly not been met.
	I am happy to take interventions, but I was interrupted at a point at which I was trying to explain about the complex ways in which sophisticated tax advisers can help non-domiciles to avoid paying inheritance tax, which is one of the most difficult taxes to avoid in the United Kingdom. According to Mr. Tailby-Faulkes, whom I quoted earlier,
	"UK property is always within the IHT net on the death of the owner, even if they haven't been domiciled in the UK.
	A simple way to mitigate this is to have a mortgage on the property... But one problem is that if foreign income or gains are used by the foreign domiciled borrower to pay the mortgage then these will be taxable remittances."
	That is a problem, but he has thought his way through it:
	"A solution can be to take out a loan with a foreign lender; as long as this is on interest-only terms, using foreign income and gains to pay the interest costs will not count as a taxable remittance."
	There are mechanisms to deal with even the most intractable tax-avoidance problems.
	It was precisely because of that set of concerns that the Prime Minister, then Chancellor of the Exchequer, wished to initiate a review of the whole question, which he did in the 2002 pre-Budget report. He said:
	"Building on this work, the Treasury and the Inland Revenue will assess how the current rules work in practice, and will publish a background paper to aid discussion of how the rules compare with the Government's principles."
	What happened to that 2002 initiative? No report has ever been published, no review of policy has ever been described, and no calculations have ever emerged to establish whether or not it would be beneficial to the United Kingdom.

Julia Goldsworthy: When our hon. Friend the Member for Lewes (Norman Baker) asked that very question during Treasury questions last week, he received the following answer:
	"The Government's review of the residence and domicile rules is ongoing. The Government are mindful that any change to the current system would need to balance carefully the principles of ensuring fairness and of promoting the UK's international competitiveness."—[ Official Report, 12 July 2007; Vol. 462, c. 1605.]
	Does my hon. Friend agree that if the review is "ongoing", it is about time we received a report?

Vincent Cable: One would have thought that five years might produce a less bland analysis of the issue. In the meantime, some of us have been trying to find out how far the Treasury progressed with its inquiries and what are the preliminary results. I asked the then Economic Secretary to the Treasury, the right hon. Member for Normanton (Ed Balls)—now Secretary of State for Children, Schools and Families—about that some months ago. When I asked him specifically how much tax had been forgone as a result of the concession, he replied:
	"Estimates of the tax forgone in the UK as a consequence of the use of the remittance basis by those not domiciled in the UK are not routinely made... No estimates have been made of the economic benefits to the UK from the retention of the domicile laws on taxation."—[ Official Report, 30 April 2007; Vol. 459, c. 1383W.]
	That was five years after the study had been initiated.
	Part of the problem with the right hon. Gentleman's answer is that—although I am sure that this was not intentional—it is not actually true. The Government have been obliged on several occasions to divulge the results of their work. A few years ago, a freedom of information request by a magazine called  Accountancy Age produced what is described as "a heavily redacted memo" from the Inland Revenue to the Paymaster General, dated 15 December 2003. The memo contained the statement:
	"Many non-domiciled residents pay substantial amounts of UK tax. We estimate that, in total, they pay about £5 billion in UK tax and NICs but only escape tax of about £1 billion of unremitted income and gains."
	Therefore, there is a basis for an analysis—and, indeed, there might be a positive outcome.
	I repeatedly press the Government for updates on those figures and more detailed analysis, and the answer I receive is remarkably secretive. The latest statement from Her Majesty's Revenue and Customs is:
	"HMRC does hold some information prepared since 1 January 2005...but we are not proposing to disclose that information because we think that the information is subject to an exemption under section 35 of the Freedom of Information Act 2000—information held for the formulation or development of government policy."
	I ask the following obvious question: what on earth have the Government got to hide? If this is a beneficial relationship—if it is to the benefit of the UK economy—why do the Government not publish, given they have nothing to lose? All we are asking for is a straightforward statement of the benefits to the UK in tax terms, the revenue that is being forgone and a balanced evaluation of whether this is good for the UK economy. In the final analysis it might well be a perfectly sensible arrangement that is necessary in a globalised world economy, but I would like to see such a proper analysis of that. Instead, the Treasury have addressed the matter in a secretive manner.

David Taylor: Does the hon. Gentleman accept the thesis of the previous Government—and, indeed, of the current one—that any vigorous attempt to tighten the domicile rules will undermine the City's role as a global financial centre? Does he acknowledge that there is a trade-off, and at what point would he be willing to trade off some flexibility on the definition of domiciled status?

Vincent Cable: The hon. Gentleman is right that there is a trade-off, and it would be foolish to be dogmatic one way or the other.
	I have another quote on non-domicile tax relief from a leading City tax specialist, Richard Murphy:
	"When I have sat with Treasury officials and asked them why don't they do something about this, it is because they are frightened the money will leave London and they think there is a benefit to this."
	We say, "Quantify the benefit." That is all that we are asking for. The benefit could indeed be huge—as the right hon. Member for Wokingham (Mr. Redwood) said. If so, why is the Treasury so frightened of making the case? One would have thought that it would be a straightforward and easy case to make, but in almost five years of deliberation the Treasury have clammed up completely in terms of giving any facts or analysis of the situation.
	One reason why the Treasury ought to focus on this question is that it appears to be easy to get non-domiciled status. I was not aware that that was the case until one of my staff who has a grandfather from Switzerland made inquiries. He asked, "If I wanted to become a non-domicile taxpayer, how would I do that?" Those who wish to do so get a four-page form which must be filled in. So far as I am aware, there is no extensive vetting by the Inland Revenue. They just proceed, even though they might have very tenuous connections with the UK. It might be for that reason that the number of those involved is rising rapidly: there were 105,000 in 2003-04, 112,000 in 2004-05, and perhaps the Minister will tell us how many have been granted that status since.
	I do not wish to make a dogmatic case for or against this form of tax relief for very wealthy people. Like the hon. Member for North-West Leicestershire (David Taylor), my instinct is that there could be some sensible limitations. One obvious limitation would be to restrict the number of years for which it is possible to enjoy non-domiciled status. Allowing that period to go back to the era of people's grandparents or parents seems to me to be remarkably generous. A period of 20 years, which would align with the inheritance tax rules, might be a fair compromise. It would also be fair and right that even if we were to allow non-domiciled investors to continue, in the interests of the City, to enjoy tax relief on their overseas income—although I should say in passing that the Americans do not allow that—some specific exemptions, such as that capital gains tax is not subject to anti-avoidance rules, clearly should be dealt with.
	I hope that what I have said will stimulate debate on the non-domiciled rules—I do not think we have ever had one during my 10 years in Parliament. I have said a little about capital gains tax, and I wish to talk briefly about a couple of other major taxes of importance to the very wealthy.

Steve Webb: Before my hon. Friend moves on, he mentioned anti-avoidance and I ask him to touch briefly on the concept of a generalised anti-avoidance rule. I am a layperson in terms of these matters, but I have always felt that a presumption that active avoidance techniques should be ruled out as a point of principle would be preferable to the current piecemeal approach. Does my hon. Friend agree?

Vincent Cable: Yes. We have argued for that, and I believe that the Government want to move in that direction, although they have been slow in implementing that. What my hon. Friend proposes is obviously right and would make it more difficult for companies to set up in business with the specific purpose of promoting anti-avoidance. The Government have made it clear that they want to tighten up where they can. However, the Government are having a drive on tax evasion, as opposed to tax avoidance. They have offered a generous amnesty to large numbers of very wealthy people who have not been paying taxes that they legally should have paid. A perfect combination of policies would be to pursue assiduously the evaders while tightening up on avoidance.

David Taylor: The hon. Gentleman is being generous in giving way. On the appropriate approach to avoidance schemes, will he look at the early-day motion 1652 that I have co-sponsored, which draws attention to the regrettable attitude of the five big accountancy firms to devising, promoting and implementing tax avoidance schemes on a grand scale that have no commercial substance? Those firms are heavily involved in artificial loans, fictitious assets, secretive trusts and transfer pricing, which deprive the Exchequer of billions of pounds every year and therefore restrict social investment, and which transfer the load of financing public services to taxpayers with less means than the very rich people whom those five accountancy firms service.

Vincent Cable: The hon. Gentleman is right, and I am sure that those firms would say that as long as the system permits it, why should they not pursue fee income from their clients? The only way to prevent that would be to have the kind of rule that has been described. It is my understanding that the Government want to move in that direction. Will the Minister tell us how far they have got?

Julia Goldsworthy: My hon. Friend might be interested to know that during discussions of this year's Finance Bill there was some evidence of mini general anti-avoidance rules being discussed in terms of issues such as stamp duty land taxation. However, the industry's concern is that that might be in addition to the existing Government regulation, and it asks for a simplification instead of additions to the already complex taxation system.

Vincent Cable: I thank my hon. Friend for that intervention. She worked extremely hard on the Finance Bill and is much closer to the technical issues than I am, and I am sure that she is right.
	Let me say a few words on unfairness in relation to other taxes that bear upon wealth. Stamp duty is a tax on transactions rather than a wealth tax, but it does relate to property assets. Two elements of unfairness should be dealt with. The first involves what is technically known as the slab system. When a certain threshold is reached—£250,000 for the 3 per cent. limit—the purchaser pays the full 3 per cent. on the total sum. Therefore, somebody who purchases what is nowadays quite a modest house pays £7,500. Somebody who buys a house worth £500,000—in much of south-east England that would be a modest home—will pay 4 per cent. on that total, which amounts to a £20,000 tax bill in cash. That is an extremely onerous form of taxation and, moreover, it is not progressive.
	Another beneficial loophole to those who are well organised and wealthy means that if they arrange to buy a house through a corporate offshore vehicle, they can pay as little as 0.5 per cent. stamp duty. Many very wealthy people use that loophole. I am surprised that the Government have not alighted on that problem in their efforts to combat tax evasion.

Philip Hammond: I carefully read the Liberal Democrat document that was published last week, and I have a question about the slab versus the slice system. The hon. Gentleman proposes to move from the slab to the slice, but will he confirm whether that will apply at the £500,000 threshold, or is the document suggesting that when £500,000 is reached, the entire value of the property will become subject to the 4 per cent. rate from the first pound?

Vincent Cable: We are recommending the principle that it should apply up the scale. Exactly how that will operate depends substantially on the state of the property market. If the hon. Gentleman wants a good description of how a reformed stamp duty system would work, several years ago the Council of Mortgage Lenders produced a set of numbers showing how a progressive scale of charges would work. We would endorse that principle, although the detailed arithmetic would have to be reworked in the light of current numbers.

Andrew George: I apologise for dragging my hon. Friend back to property taxation and capital gains tax on second homes. The issue is not just raising fair taxes on those with wealth, but using the available records of those who would have to pay capital gains tax as a means of rationing properties through the planning system if a change-in-use class order were introduced, as our party proposes. Does my hon. Friend agree that the issue is not just fair taxation, but using the tax system to ensure that properties can be rationed so that those in the most desperate housing need, rather than second home owners, get properties?

Vincent Cable: I would quibble a little over the word "rationed", but the sentiment of my hon. Friend's intervention was helpful and supportive, and I agree with him.
	I do not want to spend long on inheritance tax because those who suffered through discussion of the Finance Bills of the past few years—my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) soldiered on the front line—have talked about inheritance tax ad nauseam for hours, if not days. There are some odd features of the way in which the inheritance tax system has worked out in recent years, and the numbers are simple. Since 2000, the number of estates valued at more than £2 million for inheritance tax has declined by 8 per cent., in the context of an enormous increase in the number of properties worth more than £2 million. The number actually paying inheritance tax has fallen. On the other hand, the number of estates valued at between £300,000 and £500,000 has increased by 20 per cent. Essentially, the tax is voluntary for those at the top end of the scale because they have access to sophisticated advice, while middle class families—that is essentially what we are talking about—who are not familiar with the various devices available to them, particularly through gifts, are paying the tax, unaware of the potential for avoiding it. Clearly that is fundamentally unsatisfactory.
	I shall summarise a few of our proposed steps to make the system fairer—they are modest, and part of a much more comprehensive approach to taxation—to bring together the threads of my argument. First, it is clear that the reliefs on capital gains tax—such as taper relief—should go because they are expensive, unfair and reward wealth unsatisfactorily with no evidence that they produce significant economic change of behaviour.

Stewart Hosie: On capital gains tax, if I remember correctly, the personal allowance is £8,800. Where do the Liberal Democrats see that allowance going? Will it fall to £1,000, as was suggested last year when they published their previous document?

Vincent Cable: That is a fair question, and we have reconsidered the issue in the light of discussion with people in the investment industry. We did indeed propose a substantial reduction in the allowance, and we have rethought it. Our current proposals, which are set out in our report, make no suggestion of changing the level of allowances, for the simple reason that a large number of small investors would otherwise be caught. The hon. Gentleman asked a sharp question, and picked up on the fact that our proposals suggest a modest change.
	Secondly, we propose some tightening up of the non-domicile rules. We do not want to abandon them, but we want to change the residency requirements, and to cut back on some of the provisions, particularly concerning capital gains tax. Thirdly, we want to tighten the rules applying to corporates buying property and escaping stamp duty. We want to clamp down on inheritance tax avoidance by extending the seven-year rule on gifts to 15 years.
	Behind those policies are bigger ones, notably, as the Conservative Front-Bench spokesman intervened to say, abolishing council tax because in relation to income it is highly regressive, and much the most regressive of all forms of taxation. We want to scrap it entirely, and to replace it with a tax based on people's ability to pay—their income. That would help to improve the overall equity of the tax and distribution system.
	The Government have talked a great deal about progressive consensus and fairness. They have presided over a system of distribution of income and wealth that has not improved income and has deteriorated in terms of wealth. Taxation clearly has a part in correcting that, and I commend the motion to the House.

Andy Burnham: I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
	"notes that since 1997, the Government has undertaken a comprehensive programme of reform to the tax system, which has encouraged saving and rewarded enterprise, reduced child poverty, supported hard-working families and provided security for all in old age, and welcomes the fact that these reforms strike the right balance between encouraging enterprise and investment, maintaining the UK's international competitiveness and delivering a modern and fair tax system, in which all pay their fair share of tax."
	Let me begin with some facts that provide the essential context for this debate. In this financial year, the top 1 per cent. of earners—those with a pre-tax income of £117,000—will pay 22 per cent. of all income tax. The top 5 per cent. will pay 41 per cent., and the top 10 per cent. will pay 52 per cent. of all income tax gathered.

Several hon. Members: rose —

Andy Burnham: I was about to say that to most normal people, if not Lib Dems, those figures would suggest that the income tax system in this country was both fair and progressive, but if they want to correct me I will gladly give way.

Madam Deputy Speaker: I call Mr. Edward Davey.

Steve Webb: It is Steve Webb, Madam Deputy Speaker, although if I say something silly, it is my hon. Friend.

Madam Deputy Speaker: I am sorry. I call Steve Webb.

Steve Webb: Thank you, Madam Deputy Speaker. The Chief Secretary said that the richest 1 per cent. of income earners pay 22 per cent. of income tax, but that statistic is meaningless unless we know what proportion of income they have. Can he tell us what proportion of income the richest 1 per cent. have?

Andy Burnham: I do not know whether that is a question from the hon. Member for Kingston and Surbiton (Mr. Davey) or the hon. Member for Northavon (Steve Webb). The important point is that the top 1 per cent. pay 22 per cent. of all income tax, and they are people with a pre-tax income of £117,000.

Julia Goldsworthy: rose—

Andy Burnham: I must make some progress, but I shall give way again.

Julia Goldsworthy: In welcoming the Chief Secretary to the Treasury, perhaps I could help him with some information. Is he aware that the richest 20 per cent. pay a lower proportion of their income in tax than the poorest 20 per cent.?

Andy Burnham: I shall come to some of the figures, but it is interesting that the minute I raise the subject of taxes, Liberal Democrat Members get excited and want to pick holes. That suggests that they are slightly sensitive about the subject. I did not hear the words "pips" or "squeak" during the contribution of the hon. Member for Twickenham (Dr. Cable), but I would not have been surprised if they had crept in at some point.
	In this country, we have a system of taxation that is both progressive and fair, and it has underpinned an unprecedented period of economic growth in this country—59 consecutive quarters, to be precise—and unprecedented investment in our public services. Any proposals for change that could put that hard-won stability and prosperity at risk would need to be considered very carefully—particularly any proposals for more radical change. That is the problem with today's debate. I think it was originally entitled "Fair taxation for the super-rich".

Philip Hammond: indicated assent.

Andy Burnham: The hon. Member for Runnymede and Weybridge (Mr. Hammond)—I welcome him to his new Front-Bench role—nods in agreement. Those words have strangely disappeared from the title of today's debate. The point is that tax is complicated, as the hon. Member for Twickenham (Dr. Cable) made clear. Any changes to taxation need to be informed by a balanced view across the whole economy and considered in the round. By taking one issue in isolation, as the hon. Gentleman did, he and his colleagues are seeking to suggest that there are easy answers and easy targets. That is the politics of the student union. Coupled with last week's optimistic proposals for income tax giveaways, it can be concluded that the timing of today's debate suggests a certain nervousness about upcoming by-elections on Thursday.
	Over the past 10 years, the Government have had a record to be proud of in increasing fairness in our tax system and society. We have made the tax system fairer by closing loopholes and clamping down on tax avoidance to ensure that everyone pays the right amount at the right time and pays their fair share. We have reformed the tax and benefits system to help to create a fairer society, providing more support for work, families and pensioners and cutting child and pensioner poverty, both of which were rising in 1997. In developing our tax policy, we have recognised that the surest foundation for a fair society is stable macro-economic performance that delivers jobs, growth and opportunity for all.
	Under this Government, Britain is better off. Household net wealth is the highest that it has ever been, up 65 per cent. from 1997. There are 1.8 million more home owners than 10 years ago and the average household is £1,000 a year better off because of our changes to the tax and benefits system. From April next year, we will cut the basic rate of income tax to its lowest rate for more than 75 years. It is not the super-rich who are benefiting from the changes but those in the lowest income decile, who have seen the greatest percentage increase in their net income as a result of our tax and benefit changes. Between 1979 and 1997, the poorest 20 per cent. of households saw their income grow by less than 1 per cent. a year in real terms, while the richest 20 per cent. saw theirs grow by more than three times as much. Since 1997, the poorest 20 per cent. of households have seen their income grow by 2.2 per cent. a year—faster than that of the richest 20 per cent. So the Government have halted the dramatic rise in household income inequality that the country saw in the '80s and early '90s.
	The Institute for Fiscal Studies has found that without the Government's reforms to the tax and benefits system, income inequality would have continued to rise sharply. In 1997, the UK had the highest child poverty rate in Europe. Since then, we have reduced child poverty faster than anywhere in Europe, with 600,000 children lifted out of relative poverty. The number of children in absolute poverty has been halved. To build on those achievements, this year's reforming Budget went further with plans to simplify the tax system, to provide help for pensioners and support for families, and to make work pay. As a result, four in five households will see no change or will be better off. Increases in child tax credit will help lower to middle income families and help the Government to take a further 200,000 children out of relative poverty. Some 580,000 pensioners will be lifted out of income tax altogether.
	I have spent time setting out that record because it provides the context for the consideration of the issues that the hon. Member for Twickenham has brought to us today. He began his remarks by calling for "a greater attention to the distribution of income and wealth"—if I quote him correctly. It is interesting that the hon. Gentleman called such a debate when I believe that he called the Government's increases in the national minimum wage "dangerous". That is a difficult position for him to hold when he begins a debate by preaching to this side of the House about the distribution of income and wealth.

Vincent Cable: Will the Chief Secretary give way?

Andy Burnham: I will give way, and I hope the hon. Gentleman will confirm that that was what he said.

Vincent Cable: It was not what I said. I and my party have voted for the minimum wage and—in Committee—for every increase. I said that it would be dangerous if the Government proceeded with increases in the minimum wage that were not aligned with the recommendations of the Low Pay Commission, which governs the minimum wage. The context is quite different. We are fully supportive of the minimum wage and the increases that have taken place.  [Interruption.]

Andy Burnham: I will not apologise. Let us say that the hon. Gentleman is ambivalent, at the least. I recall hearing him or one of his colleagues calling for a regional minimum wage, and that is different from a national minimum wage, which this party introduced and to which we remain steadfastly committed. It is a different thing, and at the very least people who are watching this debate will conclude that there is a certain ambivalence on the part of the hon. Gentleman on that issue.
	Today, the hon. Gentleman was noticeably silent on the tax proposals that he introduced last week. He made a long speech, going into all possible corners of the tax system, but did not dwell on the new package of proposals that he put forward last week. I read them, like the hon. Member for Runnymede and Weybridge—it is terrible that we have to spend our weekends reading Lib Dem tax documents, but such is life. But it was raining anyway and what else can one do on a wet Saturday? I want to challenge the hon. Member for Twickenham to tell me in simple terms what the proposals would do to "improve" the distribution of income or wealth in this country. May I ask him—

Vincent Cable: rose—

Andy Burnham: The hon. Gentleman wants to intervene again, but he should let me ask the question first. Am I right to say that reducing stamp duty on properties worth up to £500,000 and raising the inheritance tax threshold to the same amount would not benefit everyone in this country and perhaps only a certain few?

Vincent Cable: The Chief Secretary asked me what effect the proposal would have on income distribution. Our analysis, which has been corroborated by the Institute for Fiscal Studies, is that it would benefit all income groups except for the top decile.

Andy Burnham: Let me give the hon. Gentleman my analysis, and that of the Treasury, of some of the proposals. Unless I am mistaken, he did not mention this once in his remarks, but the proposal is to cut 4p off the basic rate of income tax. Our calculation is that that would cost £18 billion in 2008-09—he agrees with that—and £19 billion in 2009-10. That is a lot of tax on petrol or flights. If he is suggesting that he can raise that amount by closing "tax loopholes", it is a big claim to make.
	Our analysis shows that Liberal Democrats' policy would most benefit the highest earners. About one in five households in the bottom income decile would gain, whereas all households in the top income decile would gain. The average gain per household increases as one goes up the income scale, with households in the top decile gaining, on average, 50 times the amount of households in the bottom decile. Three quarters of the cost of that policy would be spent on the top four income deciles, with one quarter going to the top income decile alone. Less than 1 per cent. of the total cost would be spent on households in the bottom decile. True or false?

Julia Goldsworthy: Has the Chief Secretary compared the impact that he has just described with the impact of a 2p cut in the basic rate of income tax across the income distribution bands? What would be different?

Andy Burnham: I invited a response on the point that I was making. The debate was called by the Liberal Democrats and I began by laying out some of the Government's policies. The figures that I have given for the Liberal Democrats' policies are staggering for a party that has come to the House this evening talking about narrowing the income gap and lecturing the Government. I note that there has been no effort to repudiate my analysis.
	We should think about the income distribution effects of the Liberal Democrats' proposed changes and then about their proposal for a local income tax. In his report on local government finance, Sir Michael Lyons concluded that a local income tax was feasible, but he added that it would mean
	"substantial increases in tax for the working population."
	In addition, green taxes would have to bear the brunt of achieving the huge savings that would be needed to deliver a 4p income tax cut. What on earth would that do to the taxes on travel faced by the average family? Would an annual holiday be put beyond the reach of the average family in my constituency? I believe that they would struggle if the cost of holidays were to increase significantly. The hon. Member for Twickenham was noticeably silent on all those points and I am amazed that he did not refer once to his party's proposals in his speech.
	Let me talk about some of the changes that the Government have made to tackle avoidance and to close loopholes. We have taken steps to make sure that everyone pays their fair share of taxes and we have acted in respect of each of the personal taxes. In response to contrived avoidance schemes to avoid income tax and national insurance contributions, usually marketed to a small number of individuals receiving substantial City bonuses, we made a clear statement in December 2004 that future schemes would be legislated against with effect from that date, not from the date of the legislation. We estimate that, had that statement not been made, more than £1.7 billion of tax and national insurance contributions would have been avoided through such schemes.
	More recently, we have acted against abuses of sideways loss relief, with a fair and proportionate response that allows SLR to be used for legitimate business reasons but protects £760 million—three quarters of a billion pounds—in tax. We have also acted to prevent avoidance of inheritance tax by introducing pre-owned asset rules in 2004 that take a fair share of tax when someone gives away an asset but continues to benefit from it. On capital gains tax, this year's Finance Bill, which is to be debated in another place tomorrow, introduces a targeted anti-avoidance rule designed to put an end to the contrived schemes that avoid tax by generating artificial losses. On stamp duty land tax, the same Bill permanently closes down schemes that avoid tax by adding extra stages to the sale of property from one party to another.
	The changes to capital gains tax and stamp duty land tax in the Finance Bill have been introduced as a result of information received by Her Majesty's Revenue and Customs through the disclosure regime that was first introduced in 2004. That regime, which obliges the promoters of avoidance schemes to disclose them to HMRC, is allowing us to act against avoidance more swiftly and in a more targeted way. The capital gains tax and stamp duty land tax measures demonstrate that the regime is having a deterrent effect, with marketed schemes decreasing significantly. In addition to acting against contrived avoidance, we are tackling tax evasion. For example, HMRC has obtained details of hundreds of thousands of offshore account holders from a number of banks and expects to collect hundreds of millions of tax that had been evaded, as well as interest and penalties.
	As well as delivering rising prosperity for all in what the IMF described in February as a
	"decade-long record of strong and steady macroeconomic performance",
	Britain is now benefiting from the longest period of sustained low inflation—certainly the longest in my lifetime. We have the second-highest GDP in the G7, instead of the lowest, as when we entered office, and growth that is not only strong—stronger this year than in the euro-area and in the United States—but sustained. As I said, we have experienced 59 quarters of uninterrupted growth—the longest period on record for any G7 country. Even if the UK's economy were to stop growing tomorrow, which of course we do not expect it to, it would take at least nine years for any other major economy to overtake that record. That macro-economic performance, that stability and that strength in our economy have delivered rising standards of living and rising prosperity right across Britain, and it is important to say that this is not a zero sum game. We do not have to make some people poorer to make others richer; we have shown that over the past 10 years. We want our good macro-economic performance to continue, and we want Britain's economy to continue to succeed. We are confident about the position that we are in, but of course we must not be complacent. There are challenges that we need to face, including that of globalisation.
	As technological advances and falling transport costs break down the barriers to trade and economic integration, we have to be watchful, and we must ensure that the increasingly interconnected world economy continues to work well for Britain and our national interests. Capital and labour are increasingly mobile; that is particularly true of highly skilled individuals, who are increasingly in demand as the world moves towards a more skills-based economy. That presents some challenges, but also huge opportunities, and the UK is making the most of them. With skills increasingly at a premium, we will benefit from our hugely talented work force. That is partly the result of our high-quality education provision and training, but it is also because of the openness and internationalism that characterises the City: one quarter of London's senior managers in financial and business services come from abroad.
	I will pause to reflect on the City for a moment, because its performance in recent years has been truly remarkable. London is now established as the world's leading global financial centre, and Britain has a trade surplus in financial services that is twice as large as any to be found elsewhere in the world; it totalled £26 billion last year. The wealth that the City generates is critical to our economy, and we have worked hard to maintain its competitiveness. We will continue to work hard to build on the City's leading position, and we will work with the City, including through the high-level group that the Prime Minister set up when he was Chancellor of the Exchequer. I encourage the hon. Member for Twickenham and his colleagues to reflect on the City's strong position when they consider the changes that he proposed today.
	The hon. Gentleman spent a good deal of his speech talking about the rules affecting non-domiciled individuals. That is a complex area, but we are talking about a relatively small group—it is made up of some 112,000 people, according to the latest estimates. That group declares some £9.8 billion through the self-assessment process, but it is important to note that it contributes £3 billion in tax, and it behoves the hon. Gentleman to recognise that. That is a significant contribution, and it is not correct to perpetuate the idea that there is serial avoidance by that group.
	It is not right to suggest that it is easy to gain non-domiciled status. A person's domicile is the country to which they are attached from birth to the age of 16. A person usually has the same domicile as their father, and at the age of 16, they may have a domicile of choice, often through the nationality of their father. It is not my understanding that someone could gain non-domiciled status on the back of a tenuous link—I think that that is the phrase that the hon. Gentleman used—with a country. If the hon. Gentleman writes to me with more details on that point, I will be interested to read what he says, but it is not easy to change status in the way that he suggests.

Julia Goldsworthy: I would be grateful if the Chief Secretary to the Treasury clarified a point for me. My understanding is that it is possible to inherit non-domiciled status. If someone's parent was non-domiciled, they could claim non-domiciled status. That is what I inferred from his remarks. Is that the case?

Andy Burnham: I believe that it is the case, and if it is not, I will correct what I said. I was referring to a comment made by the hon. Member for Twickenham, in which he appeared to suggest that a person working in his office who had a Swiss grandfather could, on the back of that, achieve non-domiciled status for tax purposes. That is not my understanding, and it is not right to suggest that it is easy to gain that status. I hope that the hon. Gentleman will accept that we are talking about complex changes that would have an impact not only on the economic competitiveness of the country, but on other parts of the tax system.
	It is important to avoid knee-jerk responses, to give careful consideration to any proposed changes, and to have consultation on any proposals. The tone of some of the hon. Gentleman's remarks suggested that this was a relatively easy target. He made great play of the 4p cut in income tax and seemed to set great store by it, but how much money would he raise to pay for that £18 billion spending commitment?

Vincent Cable: If the hon. Gentleman has read the report, as he said that he had amused himself over the weekend by doing, he will have seen that the arithmetic is quite carefully set out and that it is balanced. We estimated that the cost of the 4p cut would be rather more than £18 billion—closer to £20 billion. Perhaps we were conservative, but it would be paid for partly by the capital gains tax taper relief, which is about £6 billion, partly by the environmental taxes, which he has fairly referred to and which we can debate, which are of roughly the same order of magnitude, with the balance to be paid for by restricting pension contribution tax relief to the standard rate. Those are the three components and if he has read the report, he will have seen that it balances.

Andy Burnham: I saw some press coverage of that arithmetic. As the hon. Gentleman knows, I have not been in the Treasury for long and he is well versed in these matters, but I suspect that in his heart of hearts he knows that these are optimistic policies, to say the least. That was the word that I heard civil servants use today to describe some of these plans. We all know what optimistic means in this context, and if the average family realised what burden would be loaded on to their petrol bill or their annual family holiday bill to make some of this tax burden even vaguely fundable, they would have some serious second thoughts about what the hon. Gentleman and his colleagues have in mind.
	During the last few days there has been a significant debate on taxation as it affects families, particularly married couples. Not having a great deal to do at the weekend, I read through all the press cuttings, and it was interesting to see the different views beginning to emerge from the Conservative party following the publication of the document last week by the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith). The key proposal for a marriage tax break would take billions of pounds out of public services and support for all families and help married couples at the expense of other children. It was interesting to see how quickly some began to back off. The right hon. Member for Wokingham (Mr. Redwood) characteristically had the courage to go on the record and he was quoted in  The Times on Friday as saying:
	"For the life of me, I cannot see why one should give a prize to people with no children, simply because they happen to be married."
	One can only speculate as to the identity of the "modernising Tory MP" quoted in  The Times on Friday as saying:
	"This is straight back to the 'nasty party'. God knows why David has done it."
	It is interesting to follow the ups and downs of the debates in the Tory party that seem to be ebbing and flowing outside the public view. But even more staggering when one reads the document published last week is that not only was there the cost of the marriage tax break, but on a conservative estimate, some £10.9 billion of spending commitments. How on earth all that adds up when one considers the policy of sharing the proceeds of growth is beyond me. I hope that the hon. Member for Runnymede and Weybridge will enlighten us this evening when he makes his remarks. We agree with two conclusions of the Conservative social policy group, however. In December 2006, it concluded:
	"For the past 10 years, inflation has been low, the stop-go cycle has given way to continued economic growth and there has been full employment."
	We certainly endorse those conclusions.
	All the actions that the Government take will go to continuing to improve the competitiveness of our economy, coupled with reforms that will continue to increase fairness in the tax system. We will continue to make those changes because we need to recognise the realities of a modern, global economy, with the increasing mobility of labour. The Chancellor has made it clear that on many of the issues that the hon. Member for Twickenham has raised this evening, such as taper relief or the residence and domicile rules, we will not make changes without thinking them through. We will not have the knee-jerk reactions that some call for these days. Changes to the tax system must be properly considered and carefully thought through in the context of what is best for the economy overall, and that is what we will do.
	This issue is about striking the right balance—a careful balance between competitiveness and fairness. It is about recognising that we do not have to penalise the rich or make them poorer to make everyone else better off, although we expect them to play by the rules. We have shown that we will take action to ensure that they pay their fair share of tax. This Labour Government have shown over the past decade that we can strike the right balance for Britain, and raise prosperity for everyone while providing the most support to those people who most need it. The incomes of the poorest households have grown faster than those of the richest, and we have increased fairness in our society by cutting child and pensioner poverty.
	On the back of a tax announcement last week, the Liberal Democrats have moved this evening a motion that on any reading does not enhance the position of people earning the least in our society. On that specific point, I challenged the Liberal Democrats to come forward with measures that would, as the hon. Member for Twickenham said at the beginning of his remarks, close the gap in wealth and income and produce a fairer distribution of wealth. The loading of taxes on to petrol and aviation would have a major regressive effect and hit hardest those families on the lowest incomes. The 4p cut in income tax would benefit the highest earners in society, not those in the lowest decile. The local income tax would load taxation on to the working population, and move it away from people who do not work. One must consider the combination of all those factors when analysing the package that has been put forward.
	By contrast, we have undertaken a comprehensive programme of tax system reform, which has increased fairness by closing tax loopholes. We have tackled tax avoidance and provided support for workers, families and pensioners, cut child and pensioner poverty and struck the right balance between fairness and competitiveness. By striking that balance and making tax changes only after thinking through their impact, rather than seeking short-term headlines to assuage fears about by-election performances, we have shown that by making the right decisions and thinking them through properly, we can deliver macro-economic stability, success and rising prosperity for the whole country. I urge the House to vote against the Liberal Democrat motion, and I commend the Government's amendment to the House.

Philip Hammond: I thank the Chief Secretary for his kind words of welcome, which I reciprocate. I look forward to a constructive debate with him over the coming months and possibly even years.
	I do not want to spoil the Liberals' day, but perhaps I can deal with the Chief Secretary's comments about marriage—he will be pleased to hear that the position of shadow Chief Secretary is no different from that of Chief Secretary. He knows that the excellent and exhaustive report produced by my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) is just that—it is a report to the Conservative party with a series of sometimes expensive recommendations that we will consider very carefully. With the benefit of our "Stand up, Speak up" campaign to consult the people of Britain on those issues and many others, we will, in due course, introduce carefully costed proposals, which the Chief Secretary will be able to analyse and which we will be happy to debate with him.
	Few areas are as politically charged as personal taxation, and there are few areas where the temptation to play to the gallery is stronger. There is a great scope for cruel deception in this area. Static models can be served up for popular consumption suggesting that there are easy wins for hard-pressed taxpayers by raising taxes on the undeserving rich. The hon. Member for Twickenham (Dr. Cable), by his background and his training, should understand better than most the pitfalls of pursuing that route. In that area above all others, there is an overpowering need for mature debate and for ensuring that the economic head rules the political heart.
	Sadly, despite the measured tone of his remarks, the hon. Member for Twickenham appears to have succumbed to the temptation to cash in on a popular media feeding frenzy. As the Chief Secretary has noted, the Liberal Democrat motion focuses on the taxation of the wealthy. It follows suspiciously closely the publication last week of a Liberal Democrat document, which proposes a cut in the basic rate of tax. That risks the accusation of shamelessly playing the politics-of-envy card.

Julia Goldsworthy: While we are on the theme of shifting the policy perspective allegedly in response to potential publicity, which of the following comments by the shadow Chancellor does the hon. Gentleman agree with? At a dinner at Claridges on 12 March, the shadow Chancellor told the British Venture Capital Association:
	"The importance of your contribution to our economy is, I believe, rightly reflected in the tax treatment that you receive".
	In the middle of June, however, he said that his party would support plans to raise taxes for private equity amid growing criticism that many millionaires are paying a far lower rate of tax than other workers.

Philip Hammond: If the hon. Lady will contain herself, I will specifically address the private equity question in due course in responding to the remarks of the hon. Member for Twickenham.
	I sympathise with some of the underlying concerns set out by the hon. Member for Twickenham. He expressed his position in language that was rather more moderate than the wording of the motion, but a vendetta against wealth creators is completely the wrong approach to solving the problems of income inequality. Strikingly, the motion displays a lack of vision or ambition to boost the life chances of those who are being left behind, just as the Government amendment manifests a disturbing complacency about the state of Britain.
	Tackling income inequality by attacking wealth creators risks reducing inequality at the price of general impoverishment. The Chief Secretary stated that this is not a zero sum game, and Abraham Lincoln made the same point in less modern language 150 years ago: "You do not make the poor richer by making the rich poorer." The signal that we need to send is that we will encourage those who have the skills that Britain needs to move our economy up the value curve in a globalising market, and we should not send them the signal that they are unwelcome here.

Steve Webb: The hon. Gentleman condemns the Liberal Democrat motion and the Government amendment, but he has not tabled one himself. Does he have no views on the fair taxation of the wealthy that he wants to share with the House?

Philip Hammond: If the hon. Gentleman listens carefully, he will hear my views over the coming 10 or 15 minutes.
	The original title of the Lib Dem motion was "Taxation of the Super-Rich", which has now been changed to "Taxation of the Wealthy". That leads one to speculate on whether, if the debate had been delayed by another week or so, it would have become "Taxation of the Moderately Well-Off". Evidently even the Lib Dems have recoiled at the absurdity of describing as "super-rich" people whose incomes leave them still eligible for tax credits. One of the Sunday newspapers pointed out that while £46,000 a year for a single earner household may be a very comfortable income in many parts of the country, it is hardly David Beckham territory.
	I note, too, that there is no proposal in the Liberal Democrats' tax document to reintroduce the 10p income tax band, despite their attack on its removal in the Budget. They seem keen to leave out of their calculations their long-term aspiration to increase the income tax threshold to £10,000, at a cost of £30 billion. The truth is that someone on a very low income, just falling into income tax, will still be worse off under the Liberal Democrats' income tax proposals than they would have been before the Prime Minister's Budget stealth taxes abolished the 10p rate.
	The question that we need to ask ourselves, first in response to the Liberal Democrats' paper last week, and then to their motion today, is whether their plans add up. They cost them at £22.2 billion, or £52.2 billion if we include the £10,000 threshold. Leaving aside for a moment the question of whether the replacement of council tax with a local income tax would be fiscally neutral, as they claim, how do they plan to pay for their cuts, and do those plans add up? The Chief Secretary focused on the broader picture. I want to look more specifically at three areas where the Liberal Democrats propose to raise taxes in order to pay for their proposed cut in the basic rate of income tax by addressing what they call the tax treatment of the rich, with new taxes on capital gains, a clampdown on non-domiciled residence, and a new tax on pension contributions. The latter has not been mentioned in any detail so far, and I would like to talk about it first.
	The Lib Dems propose to scrap higher rate relief on contributions to pensions. In many ways, that epitomises their whole document—ill advised, ill timed and technically flawed. It would be hugely damaging to pension savings, it would not work, and it would not deliver the increase in tax revenue that they suggest. That means that there is already a great hole in their numbers. I think that they are saying that the proposal will contribute £7.5 billion to their funding challenge, but they do not seem to be quite sure what the number is. The document that they published last August, which also proposed abolishing the higher rate pension contribution relief, said that that would produce £4.3 billion, but the document they published last week says that exactly the same policy would produce £7.5 billion. That is a piece of Lib Dem economics for us to analyse. Whichever way, the savings ratio has slumped to an almost 50-year low—just 2.1 per cent. compared with 10 per cent. in 1997. Against that backdrop, and against that of a cross-party consensus that long-term saving for retirement needs to be encouraged, it seems deeply irresponsible to propose anything that would reduce pension saving still further.
	There is an even more fundamental objection to the Lib Dem proposal—that it cannot be done. When Lord Turner's Pensions Commission considered the possibility of scrapping higher rate tax relief on pension contributions, he concluded that as long as defined benefit pensions remain a significant part of our provision, in both the public and private sectors, it was not practical to abolish higher rate relief, because when an employer pays contributions into a defined benefit scheme he does not need to attribute them to individual scheme members. None of those contributions generates tax liabilities for an individual member of the scheme, so they simply go in as a contribution by the employer.
	Under the Lib Dems' proposals, every single employer contribution would have to be apportioned and a tax liability assessed for each member of the scheme. Even if that could be done, a greater problem would arise, where an employer makes up scheme deficits at the behest of the pensions regulator. In some cases, companies are putting in hundreds of millions of pounds to make up deficits in their pension schemes. Are the Lib Dems proposing that employees, who might be blissfully unaware that such contributions are being made to make good the deficit, should suddenly be landed with a tax bill for the contribution that had been paid on their behalf? The consequences of that are all too easy to predict.
	The problem in the public sector is even worse. There is no fund, so there are no deficits, just a totally unfunded obligation that independent actuaries estimate at up to £1 trillion. How are public sector pension promises to be valued, and how is the cost of meeting them to be defined? Some public sector schemes already have notional employer contributions at a level of 27 or 28 per cent. of the total salary bill. If the calculation at individual level could effectively be made, NHS professionals, police officers, school headmasters, civil servants and others would be subject to a significant new tax charge on the contribution that the employer has made. That would shrink disposable incomes, and have a very understandable effect on long-term saving patterns. The proposal will not work technically, and if it did, it would have devastating consequences.
	There is a big hole in the sums concerning the pension tax proposal, but what about capital gains tax changes? They risk resembling a cynical exploitation of the sense of outrage that has been whipped up by the media and the unions concerning the taxation of carried interests in private equity funds. In my party, we recognise the need for fairness in the tax system to maintain public confidence, and the Government's amendment gets it right in its reference to the need for balance. Responsible politicians must be prepared to explain the dynamic effects of tax changes that may otherwise appear superficially attractive when presented in a static model. Ignoring the behavioural changes that can be expected to flow from a given tax change is to deceive as to the likely overall consequences. We must all be willing to argue the case for what is best for Britain's economy, jobs and prosperity in the long term, even where that might mean resisting the temptation to change the tax treatment of a superficially tempting and politically vulnerable target.
	Let me be clear: there is a case for looking carefully at the tax treatment of private equity. That is why the Conservative party has established a proper review of private equity and venture capital, including taxation treatment, which is being carried out for us by the European School of Management. Our objective in doing so is not to demonise an important industry, but to ensure that the tax treatment provided is appropriate to maintain the UK's competitiveness as an environment for globally important business.
	No one should be under any illusion that the delivery of a tax-competitive environment is some act of altruism directed at the operators of whatever business appears to benefit. It is, rather, an act of the utmost self-interest, and our objective, which I assume the Government share, will be to set the tax regime at exactly the point that optimises investment, maintains international competitiveness and maximises the return to the UK economy as a whole.

Julia Goldsworthy: I agree with the hon. Gentleman that there needs to be a point of principle rather than simply targeting or scapegoating a specific group. May I take it from his comments that the Conservative party will institute a review rather than, as the shadow Chancellor said a few weeks ago, support plans to raise taxes for private equity? Will he confirm that that policy will not go ahead and that there will be another policy review instead?

Philip Hammond: The policy review is already under way. The European School of Management has undertaken to produce a report on the overall climate for private equity and venture capital in the UK, including the tax treatment of the sector.
	Perhaps it will help the hon. Lady if I tell her that the shadow Chancellor has set out four tests which any reforms of the tax system must pass. First, they must not damage the competitiveness of the UK economy or the health of our financial services industry. We want Europe's private equity business to be based here in Britain, providing jobs and prosperity for British people. Secondly, we should reward those who take genuine risks. Thirdly, the tax system should focus on rewarding long-term investment and, fourthly, any reforms should be part of our broad project to make the tax system simpler and fairer.
	Leading figures in the industry have made it clear that, if something looks like income, it would be peculiar not to tax it as income, but if it looks like genuine risk taking and entrepreneurship, we should do everything we can to encourage it. One of the dangers, which the Chief Secretary mentioned, is that the original purpose of taper relief may get lost. It is a question of throwing out babies with bathwater.
	Taper relief was introduced as an alternative to indexation to protect inflationary gains from inappropriate taxation and as an incentive to entrepreneurship and risk taking. We must ensure that changes that are proposed or discussed do not lose sight of that original incentive. The proposals that the Liberal Democrats included in the paper that they published last week would hit not only private equity houses but small-scale entrepreneurs and genuine venture capitalists who fund British start-ups. The abolition of taper relief and the reduction in the annual allowance to £1,000 would have that effect. The hon. Member for Twickenham—I am glad that he is back in his place—said that that was not clear, but let us examine the figures.
	When the Liberal Democrats published their paper last August, they said that the benefit to the Exchequer of scrapping taper relief would be £4.5 billion and that that of reducing capital gains tax allowance to £1,000 would be £1.7 billion. That is £6.2 billion altogether. However, in the paper that they published last week, they said that the benefit of scrapping taper relief—the hon. Member for Twickenham claims that that does not include the reduction of the allowance to £1,000—would be £6 billion. That is £200 million less than last August's figures, which suggests that the tallied up benefit includes the reduction in the allowance.

Vincent Cable: The data on which we based those numbers came straight from the Treasury in answer to a parliamentary question and reflect the fact that the Treasury's estimate of the yield from the tax relief on taper has greatly increased in the past 12 months. The figures are consistent—the Institute for Fiscal Studies was invited to review them and considers that they add up.

Philip Hammond: If we are to understand that in the course of eight months the estimated yield from scrapping taper relief has increased from £4.5 billion to £6 billion, it makes me wonder on what I can rely in the overall equation that the Liberal Democrats have calculated. [Hon. Members: "They are the Treasury's figures."] We are, therefore, to work on the understanding that the Liberal Democrats have decided this July to keep the £8,800 annual allowance, which, last August, they intended to scrap. Fine. That is perfectly clear and I am grateful for that clarification.
	Let me say something else to the Lib Dems about their proposals on capital gains tax. I do not know what the hon. Gentleman's purpose was in publishing those figures last week, but no serious political party that has any expectation of shouldering the burden of government would ever announce such changes to the capital gains tax system in advance. If there was the slightest danger of the Lib Dem proposals being implemented, those who held assets that were pregnant with capital gains tax liability would be able to dispose of them ahead of any such changes. It would therefore be grossly irresponsible, as well as completely self-defeating, to announce a tax change of that type in advance.
	Similarly, the swipe at non-domiciled residents—people who have little if any political clout, unless they are donors to the Labour party—lands a blow on an easy target, but the evidence does not support it. The Chief Secretary is looking rather shocked, but he will know that there is a case for constantly reviewing tax treatment of that sort, albeit not in a threatening or aggressive way, but simply to ensure that it produces an overall net benefit to UK plc, not just to the individuals concerned. As the hon. Member for Twickenham pointed out, the Government's review seems to have been spectacularly ineffective, even by their standards. I have to tell the Chief Secretary that when his party's largest single donation of the year has come from a non-dom, suspicions about the management of that review are bound to arise, and he will have to deal with that.
	However, the Government's manifest failure to conduct a quite proper review of the issue effectively and efficiently does not excuse the Lib Dems' announcement of a policy without researching the consequences. They claim that the proposal would increase the tax take, but at stake is £3 billion-worth of direct tax—the amount estimated to be paid by non-doms on income generated in this country or repatriated to the UK—as well as, potentially, a much bigger hit on the UK economy, as I am sure everyone would recognise, if a shake-out of the non-dom rules causes the relocation of control of significant operations from the UK to places outside it, as many in the City fear.
	I am afraid that the Lib Dem numbers just do not add up. [Hon. Members: "They do.] They do not. The Lib Dems claim that the IFS has validated them, but we talked to the IFS to see what it had done. What it did was merely check the arithmetic on the basis of a static model. The IFS has confirmed that it would expect the dynamic effects—the behavioural changes that those tax changes would produce—to work against the Lib Dems. A few minutes of not particularly in-depth analysis blows a significant hole in the model, leaving, I am afraid, the hon. Member for Twickenham clutching a £22.2 billion spending commitment, with precious little of his hopelessly speculative tax-raising agenda left to cover it.
	Before I sit down, it is worth noting for the record that if the Lib Dems' numbers come from cloud cuckoo land, whoever wrote the Government amendment seems to be living on a different planet altogether. Try telling the thousands of families let down by the tax credits system or a business struggling to cope with the longest tax code in the world that the Government have undertaken a "comprehensive...reform" of the tax system; and tell it to the fairies that those reforms have "encouraged saving", when our savings ratio is at its lowest for 47 years. Try telling the wealth creators and risk takers in small business the length and breadth of Britain that the Government have "rewarded enterprise", when they have just raised the small companies tax rate and when they increased taxes on businesses by a total of £1 billion in the 2007 Budget.
	The Liberal Democrats' tax-cutting pledge is an unfunded spending commitment. The motion before us is intended to convey the impression that squeezing the wealthy—or the super rich, depending on which day it is—can pay for their proposed largesse, whereas the truth is that the measures targeted at that group will not produce anything like the sums required. As the documents produced by the hon. Member for Twickenham show, even on his own flawed assumptions, households with incomes of £46,000 upwards will be losers—

Vincent Cable: Sixty-eight thousand.

Philip Hammond: Single-income households with incomes of £46,000 upwards will be losers. I have a great deal of respect for the hon. Gentleman when he is in analytical mode. He has correctly identified some of the issues, and the Government's failure to tackle them, but in playing the squeeze-the-rich card rather than focusing on the urgent actions needed to allow those at the bottom of the income scale to participate in our rising prosperity, he has let the temptation to pander to popular prejudice triumph over a cool, professional analysis of what is in Britain's best interests and what will deliver long-term, sustainable social justice.

Steve Webb: I congratulate the Chief Secretary to the Treasury on his promotion to the Cabinet. It was my pleasure to shadow him and the right hon. Member for Liverpool, Wavertree (Jane Kennedy) when they were at the Department of Health while that was my responsibility, and I wish them well in their work at the Treasury.
	I had planned to expatiate on Liberal views on redistribution, to ask how one can propose freedom then take money from a group of people, and to discuss what the limits on that might be. However, as the Chief Secretary has been given such duff material to work with, I thought that I ought to respond to some of his points about the Liberal Democrats' tax proposals.
	The right hon. Gentleman seemed to be looking in two directions at once. He said two things about our plans. First, he said that our local income tax plans were evil because they would place a terrible burden on middle and higher incomes. He then said that our national tax plans were evil because they would give a disproportionate amount of money to the very same people. In other words, he was saying that cutting the basic rate of income tax by 4p would be dreadful because higher earners would gain, but putting local income tax up by 4p would be dreadful because higher income earners would have to pay more, and that was not fair. He cannot hold those two positions simultaneously. The Chief Secretary is a thoughtful man, and I am sure that he knows in his heart of hearts that he was given a bit of a duff text to start off with.
	The Institute for Fiscal Studies, for which I worked for nine years, has often been cited in the debate. It has a view of how we should assess the distributional impact of tax plans: it says that we should look at the whole package, and not pick just one bit out. The whole package includes a national basic rate cut of 4p, and a local income tax of broadly equivalent measure to take the place of the council tax. So if the national income tax cut and the local income tax offset each other, the change would be nil.
	The distributional impact of our tax policy would be to scrap the council tax—which is effectively a poll tax, especially for pensioners and the low waged—and to tax more the very wealthy, those who gain from higher rate tax relief and those who buy large gas guzzlers or are frequent fliers. Those categories of people are all predominantly wealthy. The principal beneficiaries would be those on modest incomes who are hit hardest by the council tax. That is what I call fair.

Andy Burnham: I admire the hon. Gentleman's ability to rewrite the Liberal Democrats' tax plans on his feet at that speed. It was very impressive. May I explain to him what I was saying? The analysis of the 4p cut in income tax shows that those in the top income deciles would benefit disproportionately from the plan. My point was that, for lower earners, a combination of that change, coupled with a local income tax, which would transfer the burden to those in work and away from those out of work, and environmental measures such as higher petrol taxes and taxes on flights—whatever he says, lots of working families take one, two or even three flights a year—would leave middle to lower-income families in work worse off. If he can disprove that now, I would be grateful.

Steve Webb: I am very happy to do that. I shall run through the elements in the package. Let us suppose, for the sake of argument and for ease of estimate, that the local income tax rate in a particular local authority is 4p. A reduction of 4p in the national basic rate of income tax would therefore equate to 4p going on to local income tax in a local authority area. The net effect of that has to be zero. I am sure that the Minister would accept that. The net effect of the national basic rate coming down by 4p and the local income tax going up 4p has to be nil. That change has nil effect.
	We then need to take into account the effect of closing pension tax relief, which is by definition only available to higher rate taxpayers who must be better off; getting rid of the capital gains tax taper relief, which overwhelmingly benefits the better off; scrapping the council tax, which is a very regressive tax whose abolition will help the poor; and then imposing environmental taxes on people who buy large gas guzzlers, who tend to be better off, and on the most frequent flyers who on average tend to be the better off—all those are progressive changes. It is impossible to understand how the effect of that whole package can be anything other than progressive—the Institute for Fiscal Studies has demonstrated that the only group who lose out is the top decile.

Julia Goldsworthy: On replacing council tax with local income tax, there is no doubt that for many people in work but on low incomes, the council tax represents more than 4 per cent. of their income.

Steve Webb: My hon. Friend is absolutely right. If we reflect on the low paid or indeed pensioners on very modest incomes, the burden of the council tax is one of the most severe that they face.

Andy Burnham: As usual, the Liberals pick an easy target like the gas guzzlers or big SUVs and make them the whole focus of their tax policy, but is the hon. Gentleman suggesting that tax cuts on this scale could be delivered without substantially raising tax on petrol? Is he saying that everything can be loaded on to drivers of large four-wheel drive vehicles?

Steve Webb: The right hon. Gentleman said that he had spent the weekend reading our tax plans, but having heard what he just said, I am not sure that he could have done so. Our environmental package is based first on the taxation of flights. We want to tax emissions more heavily— [Interruption.] I will, indeed, answer the question. Some additional revenue comes from taxing half-empty flights. In other words, at the moment, air passenger duty is applied per passenger, but we propose to tax flights based on their emissions. Let me explain what that means.
	The Chief Secretary mentioned his constituents who go on holiday, but many of them go on packed easyJet flights on which the air passenger duty is great because every place is used. What we propose, however, is heavier taxes on half-empty planes that are producing relatively more emissions. We should base the tax on emissions, not on individuals. We can therefore secure additional revenue in a more environmentally effective way from air passenger duty and further revenue from taxing air freight—another environmental bag from which revenue can be derived. We also want a more progressive system of environmental taxation on larger cars. Taxes should be levied on people who choose to buy larger, less fuel-efficient cars. That amounts to about a third of the total tax package.
	My current role is to write my party's manifesto for the next election and I have to tell the Chief Secretary that the criticism that the Liberal Democrat policy is not detailed enough is simply not one that I recognise. It is absolutely clear from what I have said that our package is a progressive one.
	Let me say a few words about restricting pension tax relief to the standard rate, which the Conservative spokesman, the hon. Member for Runnymede and Weybridge (Mr. Hammond), mentioned. To give him his due, in the midst of a rather banal run-through of the shadow Chancellor's four great principles, such as "tax changes should not be bad for the economy"—that must have taken a long time to write on the back of his envelope—the hon. Gentleman made some serious points about restricting the pension relief to the standard rate. He argued that that would somehow contribute to the pensions crisis. Excuse me, but it seems to me that the pensions crisis is not about higher rate taxpayers not saving enough—that is not where the pension saving gap is—but about women, part-timers and people on low and modest incomes who are not saving enough. How can restricting pension tax relief to the standard rate rather than the higher rate have any impact on the pensions crisis? There is simply no connection between the two. The pensions crisis relates to people on low and modest incomes not saving enough, but this tax change hits only the wealthiest. As the former shadow work and pensions spokesman, the hon. Gentleman will know that the very wealthiest gain disproportionately to a huge extent from pension tax relief.

Philip Hammond: Those comments are rather strange against a background of a record low savings ratio, but will the hon. Gentleman deal with the more substantive point that the idea of abolishing the higher rate pension tax relief is technically flawed?

Steve Webb: That point was raised by the Turner commission, but the hon. Gentleman has to accept the fact that pension tax relief must be allowed at some rate, so there is no reason why we should not set the rate at which it should be allowed. The whole system must be geared up to administer pension tax relief and we can set the rate at which it is allowed. If we set it lower than the higher rate, that has a simplification element: instead of different employees getting different rates of tax relief, they all get identical rates of tax relief.

Philip Hammond: The hon. Gentleman is missing the point: at the moment, any contribution that an employer makes to a pension fund does not give rise to a tax charge for the benefit in kind for the employee. Under his proposals, some contributions would have to be attributed to higher-rate-paying employees, who would then suffer a tax charge.

Steve Webb: The point of our proposals is indeed to raise additional revenue from those who currently benefit from higher rate tax relief. That is not a problem; that is where we get the money from. Higher rate tax payers are benefiting disproportionately. The hon. Gentleman implied that that would damage pension saving. He and I, however, both get higher rate pension tax relief. Were we suddenly to get standard rate pension tax relief, does he think that we would do less pension saving? Surely that would not be the result. We are simply saying that a disproportionate amount of total pension tax relief goes to people such as him and me, and that source of revenue could be used to make the tax system as a whole fairer.

Philip Hammond: rose—

Steve Webb: Tempting though it is to give way to the hon. Gentleman, I have already given way to him twice. In addition, I know that the hon. Member for Dundee, East (Stewart Hosie) wants to speak.
	Throughout the debate, there has been a suggestion that if we change anything people will flee the country, the City will tumble and we will lose money. The hon. Member for Runnymede and Weybridge is right: we do need to think about the dynamics. The second that we produce a costing based on an assumption about changed behaviour, however, we get ridiculed for making it up. The only figures available are those given to us by the Treasury, and those are based on a static assumption. If the Treasury gives us written answers based on its best guess of the change in behaviour, we will use them. It does not do that, however, so we must take the static assumption as the basis for our proposals, which are meticulously costed, as is characteristic of my hon. Friend the Member for Twickenham (Dr. Cable).
	Throughout the debate, it has been assumed that we somehow have the optimal tax system, which has been arrived at through Finance Acts, evolution and the response to short-term political pressures. When the new Chancellor next changes the system, he will justify it on the grounds that he is moving to a new optimal system. Whenever the Government change the system, they tell us that they have realised that the previous system was not optimal and needs to be changed. All we are saying is that we have not got the balance right. Yes, we need to recognise the role of incentives: characteristically, my hon. Friend the Member for Twickenham was not talking about envy or having a problem with people who have high incomes; he was saying that the balance was not right. I would have thought that any progressive party would raise that issue. It falls to the Liberal Democrats, as the only progressive party left in the House, to raise the issue of the fairness of the overall tax system.
	As my hon. Friend the Member for Twickenham said, wealth inequality has worsened in recent years. The Chief Secretary said proudly that the richest 1 per cent. pay 22 per cent. of tax, but that is a statement of the blindingly obvious: they pay huge amounts of tax because they have huge amounts of income. The richest 1 per cent. are not just like the rest of us only a bit more so; they are totally different. They have completely different sources of income and wealth, and therefore need a particular tax regime. My hon. Friend has today put on the agenda some proposals that will make that system fairer at the margins. The Conservative Front-Bench spokesman suggested that the billions of pounds that we talk about in our costings are disproportionate, but they are marginal relative to the amount of tax paid. The total tax take is between £400 billion and £500 billion. We are talking about incremental changes. A £6 billion tax on the wealthy represents perhaps 1 per cent. of the total tax take. Such sums are not huge relative to the wealth of the people whom we are talking about.
	I am tempted to go on, Madam Deputy Speaker, but I know that other Members are seeking to catch your eye. A debate of this sort is long overdue, and I am delighted that my hon. Friends on the Front Bench have sought it today.

Stewart Hosie: Before I deal with the Liberal Democrat motion, I want to say a word or two about the Chief Secretary's performance on the Government amendment. He spoke of growth over 59 quarters, tax credits and City competitiveness. The amendment refers to encouragement to save, and the Chief Secretary also mentioned jobs.
	It is worth pointing out that those 59 quarters of unbroken economic growth did not take place in Scotland, where there have been a number of zero-growth quarters, a number in which growth has been negative, and a full-blown manufacturing recession on Labour's watch. As for tax credits, the Chief Secretary will be aware that the most recently published figures showed £5.5 billion of unclaimed tax credits that were due or liable to be claimed. The system has not been universally successful.
	City competitiveness is not simply about the City of London; it is about the banking and finance sector more generally, and the 126,000 jobs in that sector in Scotland. The Chief Secretary will be aware—or if he is not, he should be—that the move in recent legislation to retain risk-based, principles-based, light-touch regulation was supported by all parties. As for encouragement to save, I believe that the savings ratio is half what it was in 1997; and as for jobs, more than 1 million manufacturing jobs have been lost since Labour came to power, 90,000 of them in Scotland. I am glad that the hon. Member for Dundee, West (Mr. McGovern) is present. We have lost 1,100 jobs in our city in the last 12 months, mainly in manufacturing production and distribution, so the picture is not universally rosy.

James McGovern: I am sure the hon. Gentleman is aware that employment in Dundee is at an all-time high since records began. It is higher now than it has ever been.

Stewart Hosie: My point is that that is not a universal picture. I am entirely aware of employment levels: I can look at the statistics each month when they are published. I am sure the hon. Gentleman knows that many of the jobs we have lost—long-term skilled, well-paid jobs in manufacturing production and distribution—cannot be automatically or simply replaced by some of the jobs we have brought into the city since.
	The Liberal Democrat motion identifies a number of key concerns, including the growing wealth gap, and demands the publication of inequality data. It refers to
	"wealthy individuals who are non-domiciled for tax purposes",
	to stamp duty and inheritance tax, and so on and so forth. The trouble with many of the suggested solutions to some of those problems is that they are based on "Reducing the Burden", a document published recently and following on from "Fairer, Simpler, Greener", published in September last year. I am not convinced that that package will reduce the burden of taxation on low and middle-income households. Indeed, I suspect that the pension savings of low and middle-income earners will be reduced further, that their travel costs will rise, and that there will be no fundamental change in the impact of indirect taxation on the lowest quintile of earners compared to the highest.
	The Liberal Democrats advanced a good many proposals in "Fairer, Simpler, Greener". They proposed to scrap the 10p starting rate, to reduce the 22 per cent. rate to 20 per cent., and to increase personal allowances. The 40 per cent. rate was intended to remain, but would apply only to earnings of £50,000 or more. The Government have announced many changes, some of which will not come into force until next year or 2009. We need to compare the "Fairer, Simpler, Greener" and "Reducing the Burden" proposals with the current allowances and tax levels. Although the amended Liberal Democrat policy would allow earners to retain a higher proportion of their income than higher earners, we believe that that would quickly be eaten up by the impact of "green" and other taxes that would be particularly detrimental for lower earners.
	I mentioned pensions. This is an important point. The Liberal Democrats intend to apply tax relief on pension contributions at the lower rate of tax only, which would be reduced from 22 to 16 per cent. under their proposals. Although they are correct to point out that half the current pension tax relief goes to the top 10 per cent. of earners, they have no plans to reinvest those moneys in a better citizen's pension for everyone. They intend to use the £4.3 billion of savings or extra tax to fill the gaping hole that will appear in the public finances.
	The Liberal Democrats propose a number of changes in environmental taxes, including the tax on vehicle excise duty, which a number of Members have mentioned. To increase VED on band E vehicles such as some Vectras and Mondeos from £150 to £850 would be disproportionate in terms of their fuel economy and CO2 emissions. Further, it would put sensible and modest family cars such as the Renault Espace on the same level of taxation as a two-seater sports car such as a Mazda MX-5. I am unsure whether that is appropriate, and it would penalise people on low and middle incomes who need a family car.
	On aviation, even without a tax on aviation fuel the current regime hits short flights more heavily than long-haul flights. As there are usually alternatives to short-haul flights, that might be fair; but there is no alternative on long-haul routes. However, the £3 billion in additional revenue that the Liberal Democrats want to take out of the industry will simply be passed on in higher ticket and cargo rates, and charges on freight flights might have an inflationary impact, which has not been discussed.
	It is difficult to predict exactly how behaviour might change, but it is unlikely that the proposals will meet the desired environmental and fiscal objectives set out in the Liberal documents. Because of environmental change, it is highly unlikely that an extra £8.1 billion will be raised from environmental taxation—either that will be the case, or the Liberals anticipate that there will not be the behavioural change necessary to fill the gap in their figures.
	I am pleased that the proposals on personal capital gains tax have gone. That would have been entirely disproportionate, and very punitive to people who have saved modest amounts of capital, perhaps in shares or share options given as bonuses, or in shares purchased through already taxed income over a lifetime of work. However, I am unsure that removing the taper relief on corporate capital gains tax will be without consequences either. People might choose to hold on to assets which they otherwise might have made liquid at an earlier stage, and that in turn might have a detrimental impact on investment—particularly cash investments.
	There will be no lessening in inequality in terms of indirect taxation. At present, the lowest quintile pays 26.5 per cent. of their income in indirect taxation compared with 14.1 per cent. for those at the top, and we are not convinced that the Liberal Democrats' proposals will produce any significant change. They have mentioned that they intend to fill some of the gap through a general anti-avoidance rule, but there is not a huge amount of clarity on that, and certainly in the most recent document there were no numbers on what that GAAR would bring in.
	Our assessment in terms of the revenue yield is that £4.1 billion would be lost from ending the 10 per cent. rate, £5.1 billion would be lost from raising the national insurance contributions threshold, £6.7 billion from cutting the basic rate to 20 per cent.—and an extra £10 billion from reducing it to 16 per cent.—£5.4 billion from increasing the upper rate threshold and another £1.6 billion from cutting corporation tax by 1 per cent. The cost would be some £22 billion, or £32 billion if the 16 per cent. basic rate were introduced.
	In terms of the revenues to compensate, I do not believe that capital gains tax will bring in the yield the Liberals suggest. Even if it doubled, it would produce a gain of only an extra £3.8 billion. There would be a gain in terms of the single rate pension contribution relief of £4.3 billion, but not one penny of that would be spent on providing a decent citizen's pension for everybody. There would also be a £1.4 billion gain from corporation tax relief changes. In terms of environmental taxes, the Liberal Democrats were not optimistic but downright heroic in their assumption of gaining more than £8 billion. I think that it would be closer to half of that because of behavioural change. There would be a £4.2 billion gain from increasing the national insurance upper earnings to £50,000. Therefore, there would be a total gain of £17 billion to 18 billion, which would leave a shortfall of some £15 billion.

Steve Webb: The Government have already done what the hon. Gentleman is talking about.

Stewart Hosie: The hon. Gentleman says that the Government have done those things, but many of them will not kick in until next year or 2009, so they have not done them all.
	In addition, according to page 8 of "Reducing the Burden" there will be a
	"substantial increase in the starting threshold"
	for inheritance tax. The Liberal Democrats also intend to have a reform of stamp duty land tax. They say that they will pay for this through a general anti-avoidance regime which will
	"strike out the tax benefit where the avoidance of tax is the main reason for a transaction."
	However, that is very subjective, there is very little detail and there are no costings.

Julia Goldsworthy: I want to make one thing clear at the outset—the language in the title of our motion. Our original title was "Taxation of the Super-Rich" and we had no problem with that wording; it was the Table Office that had the problem. There has been no stepping back on our part, or fear about using such words.
	Members have been much exercised about whether our proposals add up, but as we have said on many occasions, our analysis was informed by the Institute for Fiscal Studies, and we are basing our numbers on Government figures provided by the Treasury, so if the hon. Member for Runnymede and Weybridge (Mr. Hammond) or the Chief Secretary has a problem with the figures they should ask the Treasury where it may have gone wrong.
	The reason our proposals are evolving is that, unlike the Conservative party, we actually produce policy proposals, so they occasionally need to be adapted to respond to Government decisions; for example, after their flattering imitation of our policies, such as adopting our proposal for a 2p cut in the basic rate of taxation. That necessarily causes us to reconsider our proposals. That is the premise on which we proceed.
	It is fascinating to see so much interest in our suggestions. Our proposals last week related only to taxpayers, but there are of course wider poverty issues and I am sure the Chief Secretary and the hon. Member for Runnymede and Weybridge will be pleased to learn that they have another policy paper to look forward to this week when we publish our document on poverty and inequality. They can look forward to another weekend poring over Lib Dem policy documents. As my hon. Friend the Member for Northavon (Steve Webb) said, lack of policy is not one of our party's problems.
	The hon. Member for Dundee, East (Stewart Hosie) made an interesting comment about the differing regional impacts of the economic record set out by the Chief Secretary. In my constituency, child poverty is still a problem, not necessarily because of the tax and benefit system but because of other structural problems, such as high water bills. Until those wider structural problems are tackled there will continue to be hot spots. I have no doubt of the Prime Minister's sincerity about tackling such issues, but the problems will continue unless the structural issues are dealt with. Tax credits are a classic example. The intention was clearly honourable, but I have yet to hold an advice surgery without hearing from someone about a tax credit problem.
	Those wider tax credit problems interact with the tax proposals that the then Chancellor made in his last Budget—to cut the basic rate of income tax by 2p and abolish the starting rate—because many people do not qualify for tax credits. The problem is not just that people do not claim, but people without children do not benefit as much and the under-25s are not entitled to claim working tax credit, where take-up is already poor. We need to make sure that the fairness the Government hope to promote actually comes about.
	I planned to talk about the Lib Dem proposals, which Members on both sides of the House spent a lot of time discussing, but I am grateful to my hon. Friend the Member for Northavon for going into considerable detail about exactly where the money would come from. He made the important point that we should look at the overall balance of the taxation system.

Philip Hammond: The hon. Member for Northavon (Steve Webb) has already made it clear that the reason the Liberal Democrats looked at a static model is that those were the only figures available. They have balanced the books on a static model analysis, but do they recognise that the dynamic effects—the behavioural changes—will significantly reduce the amount of Exchequer receipts from the proposed changes?

Julia Goldsworthy: The hon. Gentleman is right, but the change in behaviour will work in both directions, which I wanted to address in terms of the comment of the hon. Member for Dundee, East. He said that the environmental taxes will not bring in as much revenue as we are suggesting because behaviour will change. We very much hope that behaviour will change, but at present we are trying to deal with an exponential increase in emissions. We want to slow that increase. I should be pleasantly surprised if emissions started to fall immediately, but our whole aim at this stage is simply to reduce the increase because it has been rising so quickly.
	I welcomed the tone of the comments of the hon. Member for Runnymede and Weybridge when he referred to his sympathy for the underlying concerns of the motion, but unfortunately he said nothing of what he felt about those underlying problems or about any Conservative proposals to deal with them. It is interesting that so much effort was expended on looking at our proposals when, clearly, the Conservatives have no proposals of their own. Rather than having giant holes in their policy, they have no policy at all.

Jeremy Browne: It might have escaped my hon. Friend's attention, but the Conservative party does have one concrete proposal: significantly to increase the price of a pint of beer. Does she think that that will go down well with our constituents?

Julia Goldsworthy: I am not sure what income groups that would impact most heavily on. Other policy ideas have been floated in relation to the taxation of private equity, but although the Conservatives might have had a policy for a week or two, that has now taken the form of yet another review group.
	On another point about behavioural change, we have been deliberately very conservative about the revenue that we think our changes will bring in. The example that we give is our aspiration to raise the inheritance tax threshold by changing the length of time that is required before people qualify as having made a lifetime gift that is exempt from inheritance tax. We have not included that costing in our proposals, because we are not clear about the dynamic impact that that would have or how long it would take to kick in.

Philip Hammond: Will the hon. Lady give way?

Julia Goldsworthy: I have only a few minutes left and I want to say a bit more.
	The Chief Secretary to the Treasury—I welcome him to his post—spoke at the outset about the amount of tax paid, rather than the proportion. We know that the poorest 20 per cent. of taxpayers pay more tax as a proportion of their income than the richest 20 per cent. My hon. Friend the Member for Northavon made that point. The Chief Secretary said that tax is complicated, but that complication is part of the problem. The unfairness is being generated in part by the fact that the complication is such that loopholes can be exploited. Those on middle incomes probably do not even know that those loopholes exist. They struggle with the basics of the tax system, because they are complicated enough. In fact, this country has the most complicated tax system in the world. It has even surpassed India's tax system in terms of the number of pages of guidance.
	The Chief Secretary spoke pejoratively of tax giveaways but, as has been said, the Liberal Democrats are trying to emphasise that there is a genuine need to look at the balance of where the burdens in the tax system lie. If he really thinks that tax giveaways are such a terrible thing, does he hope to persuade the new Chancellor to go back on the previous Chancellor's pledge to reduce the basic rate of income tax by 2p in the pound? The Chief Secretary also spoke of concerns about annual holidays being under threat. Let us not forget that the current Prime Minister, when he was Chancellor, increased air passenger duty. That is more regressive, because it was retrospective as well. We are proposing a tax on flights, which encourages them to be used more efficiently, and also takes freight into account.
	As a veteran of the Finance Bill—with the exception of my hon. Friend the Member for Twickenham (Dr. Cable), I think that I am only person present who served on the previous two Finance Bill Committees—I can say that we supported the Government on their anti-avoidance schemes and on sideways loss relief. I have fond memories of the debates on sideways loss relief, capital gains tax and stamp duty land tax avoidance measures. However, I hope that the Chief Secretary agrees that we need to go further.
	The Liberal Democrats have been talking about the need to make the tax system fairer. The Prime Minister, during the 10 years that he was Chancellor, used similar language. In his last Budget, he said that he wanted
	"to reward work, to ensure working families are better off and to make the tax system fairer".—[ Official Report, 21 March 2007; Vol. 458, c. 828.]
	I cannot see the difference between a package of neutral proposals for a 4p cut in the rate of income tax and proposals for a 2p cut. Obviously, there is an issue about the amount, but the same groups of people would benefit. If a 2p cut benefits working families and makes the tax system fairer, surely a 4p cut would do exactly the same—but to twice the extent. We are trying to deal with issues such as inequalities of marketable wealth.
	My hon. Friend the Member for Twickenham spoke in detail about issues such as inheritance tax, stamp duty land tax, and capital gains tax. There are real concerns in many areas. The avoidance of stamp duty land tax was mentioned. Not only does that have an impact on revenues—because special purpose vehicles are set up offshore—but it causes inflation in the housing market, particularly in London. Estate agents are talking about a secondary market at the very top end of the housing market in London—the very expensive end—where house price inflation is increasing massively because the houses are being bought by offshore companies, with no account taken of capital gains tax or stamp duty. We must look at the wider knock-on effects.
	Listening to the debate, I asked myself what my constituents would think. They know what their personal burden of taxation is and that their council tax is increasing. Individuals in my constituency and across the country are struggling to afford a property, and when they do manage to buy one, they know that, with house prices increasing as they are, there is a very good chance that they will become liable for inheritance tax. Fear of inheritance tax is a massive concern for them. In contrast, there are some individuals who, provided that they can pay for the advice, minimise their tax contributions in a way that we do not feel is fair and balanced. We believe that there is a real need to reconsider such issues, even in relation to "non-doms".
	We are more than happy to engage in a debate, but the Government need to give us the information that they are clearly holding and assessing first. That is what today's debate is all about. We do not think that there is anything wrong with the Government acknowledging the need to consider how balanced the tax system is. We have made our proposals. Unfortunately the Conservatives have not done the same. The Government have flattered us in the sincerest way by imitating our proposals from our last tax commission. I very much hope that the Chief Secretary will consider doing that again and look forward to seeing our proposals in next year's Budget.

Jane Kennedy: It is customary on these occasions to say that we have had an interesting debate and heard some interesting speeches, and I thank all those hon. Members who have spoken. The fairness of our taxation system is clearly an important topic. However, only one Liberal Democrat Back Bencher spoke in the debate—the hon. Member for Northavon (Steve Webb)—and he is Front Bencher most of the time. We had 45 minutes from the hon. Member for Twickenham (Dr. Cable) in this debate, and those of us who were interested heard him speak for 45 minutes in the previous debate on corruption overseas. We have heard an hour and a half of talk from the hon. Gentleman—a whole football game of noise—but silence when we asked about his party's tax proposals. That is amazing.
	The hon. Member for Runnymede and Weybridge (Mr. Hammond) made a hugely enjoyable speech, even when he was tweaking the Government's tail. Up until the last two or three minutes, I very much enjoyed his well argued demolition of the Liberal Democrats' proposals. I am grateful for his compliments, especially about our amendment, although he did make some criticisms, which I acknowledge. He regretted the lack of cool professional analysis from the Liberal Democrats, but I look forward to engaging with him in future when he brings forward the cool professional analysis that he demonstrated this evening.
	We have increased the fairness of the tax system. The Liberal Democrats' motion talks about tax loopholes, but one of the ways in which we have increased fairness has been through targeted action to close loopholes and to tackle avoidance of income tax, national insurance, inheritance tax, capital gains tax and stamp duty land tax. We have also increased fairness by incentivising work through the national minimum wage and the working tax credits. I noted the comments made about tax credits, but that debate is for another time. By providing more support for those who need it most, especially families and pensioners, we have helped those who are at the most vulnerable end of the income spectrum. The introduction of child tax credit and pension credit in particular has helped us to cut both child and pensioner poverty, which increased under the previous Government.
	I know that the Liberal Democrats' motion calls for the release of Office for National Statistics wealth inequality data since 2003, but it is HMRC, not the ONS, that is responsible for those data. Unfortunately, owing to data problems, the 2004 statistics were not released in October last year as scheduled; HMRC has subsequently been unable to obtain sound estimates and has therefore decided not to publish the data for 2004. That is clearly regrettable, but I am pleased to tell the House that the problem that affected the 2004 statistics has had no effect on statistics for later years and that the 2005 data will be published in October this year.
	As a result of the economic success that the Government have delivered—let me remind the House that we have ensured low inflation, low interest rates, high employment, high gross domestic product and high and stable growth—there has been rising prosperity for all, as my right hon. Friend the Chief Secretary to the Treasury said. Household net wealth is higher than it has ever been. There are 1.8 million more home owners in Britain now than in 1997, and the average household is £1,000 a year better off because of our reforms to the tax and benefit systems. The Government have delivered a successful economy and rising prosperity, and all of Britain will benefit from that.
	The hon. Member for Runnymede and Weybridge said that thousands had been let down by the tax credit system. We will debate that in detail on other occasions, but it needs to be put on record that the tax credit system supports 20 million people, including 6 million families and 10 million children. Take-up among families with an income of less than £10,000 is now at 97 per cent.; that is higher than the take-up for any other income-related financial support for in-work families. He also said that the savings ratio had slumped from 10 per cent. to 2.1 per cent., but that is not without a sting in the tail for him: a lower savings ratio is not surprising in a world with a stable economy and low unemployment. That is not how things were under the previous Administration.
	We have taken a number of steps to extend savings and asset ownership, particularly on the part of those in most need of support; for example, we introduced the child trust fund, and replaced tax-exempt special savings accounts and personal equity plans with individual savings accounts. We need to ensure that we maintain that position, and that requires us to strike the right balance between fairness and competitiveness. My right hon. Friend the Chief Secretary to the Treasury spoke about the increased mobility of labour in the modern, globalised economy.
	As usual, we are left with very little time to deal with the detailed points raised in this short debate. The Opposition motion refers to non-domiciled people; it would be easy to get the impression from some hon. Members who have spoken this evening that the country is full of non-domiciled people, none of whom pay any tax. In fact, we are talking about a relatively small number of people—about 112,000 of them, as my right hon. Friend said—who contribute about £3 billion in tax to the UK. None the less, as hon. Members will know, the rules on residence and domicile are under review. As Treasury Ministers have made clear on a number of occasions, and as I will reiterate tonight, any changes to the current system will need to be thoroughly thought through, and we will need carefully to balance the principles of ensuring fairness and promoting the UK's competitiveness. That is a balance that we have sought to strike throughout the tax system, and we will continue do so in future.
	The hon. Member for Twickenham could not say that he would raise as much as a penny in extra taxes for his so-called reform of the residence and domicile rules. The motion suggests that the stamp duty land tax thresholds and inheritance tax nil-rate band should reflect house prices, but no previous Administration has ever linked tax thresholds to price movements of any one type of asset. The proposal could have perverse effects; for example, linking the inheritance tax nil-rate band to house prices could result in more estates paying the tax, if prices fell.
	Tonight, we have heard a populist rallying call from the Liberal Democrats, aimed at tomorrow's newspapers and the by-elections in which they are competing. They think that everyone hates the wealthy, or the filthy rich, as they chose to call them. They think that that is a way to get votes, but I have to tell them that it is not the way to get the taxes in. As my right hon. Friend the Chief Secretary to the Treasury said, last Friday the title of this debate was "Fair taxation of the super-rich". By this morning, it was "Fair taxation of the wealthy". If this debate had been tabled for Thursday, by Tuesday it would have been "Fair taxation of the middling". By Wednesday it would have been "Fair taxation of the ain't doing so well"—

Paul Burstow: rose in his place and claimed to move, That the Question be now put.
	 Question, That the Question be now put,  put and agreed to.

Question put accordingly, That the original words stand part of the Question:—
	 The House divided: Ayes 55, Noes 288.

Question accordingly negatived.
	 Question, That the proposed words be there added,  put forthwith, pursuant to Standing Order No. 31 (Questions on amendments): —
	 The House divided: Ayes 274, Noes 61.

Question accordingly agreed to.
	Mr. Speaker  forthwith declared the main Question, as amended, to be agreed to.
	 Resolved,
	That this House notes that since 1997, the Government has undertaken a comprehensive programme of reform to the tax system, which has encouraged saving and rewarded enterprise, reduced child poverty, supported hard-working families and provided security for all in old age, and welcomes the fact that these reforms strike the right balance between encouraging enterprise and investment, maintaining the UK's international competitiveness and delivering a modern and fair tax system, in which all pay their fair share of tax.

DELEGATED LEGISLATION

Mr. Speaker: I propose to put together motions 2, 3, 4 and 5.
	 Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees),

Partnerships

That the draft Limited Liability Partnerships (Amendment) Regulations 2007, which were laid before this House on 6th June, be approved.

Constitutional Law

That the draft National Assembly for Wales (Legislative Competence) (Amendment of Schedule 7 to the Government of Wales Act 2006) Order 2007, which was laid before this House on 7th June, be approved.

Animals

That the draft Welfare of Farmed Animals (England) Regulations 2007, which were laid before this House on 12th June, be approved.

Criminal Law

That the draft Community Order (Review by Specified Courts) Order 2007, which was laid before this House on 14th June, be approved. —[Mark Tami.]
	 Question agreed to.

Mr. Speaker: We now come to motion 6 on Modernisation of the House.

Hon. Members: Object.

COMMITTEES

Mr. Speaker: With permission, I propose to put motions 7, 8 and 9 together.
	 Ordered,

Health

That Mr Stewart Jackson be discharged from the Health Committee and Mr Lee Scott be added.

Public Accounts

That Greg Clark be discharged from the Committee of Public Accounts and Angela Browning be added.

Treasury

That Mr Brooks Newmark and Mr David Gauke be discharged from the Treasury Committee and Mr Graham Brady and Mr Philip Dunne be added .—[ Tony Cunningham , on behalf of the Committee of Selection.]

petition
	 — 
	Gardens

Nick Hurd: I wish to present a petition on behalf of more than 1,800 residents of Ruislip-Northwood.
	The petition declares:
	Britain's gardens are under increasing threat of destruction arising from inappropriate and unpopular development with local opinion being disregarded and communities left powerless to prevent the infill of green spaces with the loss of precious biodiversity, the increased strain on infrastructure, notably with regard to parking and traffic flow, and the resulting change in the fundamental character of neighbourhoods against local wishes.
	The Petitioners therefore request that the House of Commons urge the Government to bring forward legislation to give stronger protection to gardens in planning law and to allow elected local councillors to have greater discretion to protect local neighbourhoods.
	And the Petitioners remain etc.
	 To lie upon the Table.

MOD STAFFORD

Motion made, and Question proposed, That this House do now adjourn.— [Mark Tami.]

David Kidney: It is a pleasure to welcome my right hon. Friend the Member for Coventry, North-East (Mr. Ainsworth) to his place on the Front Bench. I congratulate him on his new position as Minister for the Armed Forces. I am sure that he will do an excellent job and I can say to all members of our armed forces, wherever they are in the world, that they have a veritable Rottweiler in my right hon. Friend, who will be a tenacious defender of their interests and argue for them in the future.
	The debate is about the future of MOD Stafford, which is a story of optimism, thanks to my right hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Mr. Ingram), my right hon. Friend's immediate predecessor. I express my sincere thanks to my right hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow for his work in securing the future of MOD Stafford. He was always ready to listen to my concerns. He was patient when I raged and encouraged me when I had half a decent idea. I am grateful to him for all his help and support.
	Not long ago, the picture was different and the future looked bleak for the base. First, there was an announcement that approximately 450 uniformed personnel, who were based at the then RAF Stafford, would be relocated to RAF Wittering towards the east of the country. Shortly afterwards, the Ministry of Defence announced that all the storage and distribution operations at Stafford would be moved to Donnington and Bicester, threatening around 1,000 civilian jobs. Even the remaining RAF personnel, who were with Tactical Supply Wing, were caught up in a review of Joint Helicopter Command. It felt at that time as though we were spiralling downwards, towards total closure of the base, which would have ended more than 60 years of association between the military at that site and the town of Stafford.
	Happily, however, we turned things around in Stafford. Most people in Stafford are extremely supportive of their military base. It is situated on the edge of the town and so has a physical closeness to local people, as well as emotional ties. It was therefore not difficult for me to energise the local community to defend our base. We formed a taskforce and we lobbied Ministers. I brought delegations to meet the former Minister for the Armed Forces in Whitehall. We argued for the base to be retained and for new uses to replace those that were to be lost.
	Then we started to receive good news. We were pleased to learn that Tactical Supply Wing would remain at the Stafford base. It is important to point out how brave the people who work for Tactical Supply Wing really are. They are the people who fuel helicopters in all sorts of situations. If the helicopters are flying at the front line in great danger, Tactical Supply Wing is there with them, at the front line and in great danger, too. Tactical Supply Wing keeps helicopters flying to transport our troops for offensive operations. It keeps helicopters flying to rescue injured troops and bring them back to safety for treatment. All through the troubles in Northern Ireland, wherever Army helicopters flew there, Tactical Supply Wing was there fuelling them. I think that I am right in saying that Tactical Supply Wing has been the longest continuously active serving unit from this side of the Irish sea in Northern Ireland all through the troubles.
	Then we persuaded the Army to take a look at the base at Stafford. As a result, we heard the hugely welcome news that the base would be the headquarters of 12 Signal Group and the home for a new 22nd signal regiment. As a result of that decision, around 700 new uniformed personnel have moved into the base in the 12 months since. That is very welcome to local people. Interestingly, the move to Stafford has included around 160 Gurkhas, who have proved immensely popular with local people. Most Gurkha soldiers have brought their families to Stafford, and we as a community are busy welcoming them to homes, jobs and schools in the town.
	Among the civilian jobs that went with the Defence Storage and Distribution Agency were those of some engineers. There was great uncertainty about their future, but we recently received the good news that their jobs would mostly be saved, by folding their operations into those of the Army Base Repair Organisation. However, I still regret seeing so many good-quality civilian jobs being lost to our local economy, as the storage and distribution operations come to an end at the end of this year.
	However, I pay tribute both to the Ministry of Defence's human resources officers and to our local jobcentre at Stafford for helping staff to make decisions on whether they wanted to transfer to other MOD operations or take early retirement, and for helping people to find new jobs as those at the Stafford base ended. Again, I thank and congratulate the former Minister for the Armed Forces. When I asked him whether the human resources people and our Jobcentre Plus office could work together and go into the base at an early stage to give good advice to people, he had the foresight to say yes. We have had a really smooth operation in helping people at a time that would have been very worrying for them.
	Just in case there is any chance of a late change of opinion in the Ministry, bearing in mind the fact that new ministerial minds are operating there and that, for all I know, things are changing behind the scenes, I should like the new Minister for the Armed Forces to hear the four reasons why I say the wrong decision was taken on moving storage and distribution away from Stafford. The first reason is that the performance figures show that Stafford workers were among the most efficient anywhere within the entire Defence Storage and Distribution Agency.
	The second of my reasons is that Stafford is such a central location for logistics. After all, that is why many private logistics companies choose the west midlands in general—as my right hon. Friend will appreciate, as a fellow west midlands MP—and Staffordshire in particular for their operations. For once, the Ministry of Defence was in the right place with logistics in Staffordshire, with its access to the communications network of motorways connecting it to the entire country.
	The third reason is that Stafford has the only purpose-built, large-volume activity centre in the entire agency. So crucial is it to the fast moving of many individual items of equipment and machinery that the Ministry of Defence is having to spend scarce resources recreating an alternative building at Donnington to replace the one that it will lose at Stafford. No one in the MOD can tell me what is going to happen to the storage and distribution activity centre—SADAC—at Stafford when it closes at the end of this year. I fear that it will stand empty, although it is perfectly good for use, while the new one at Donnington eats up scarce resources to replace it.
	The fourth issue is one of recruitment and retention. As it is a more northerly location, Stafford has lower housing and labour costs compared with some of the alternatives in the south, and a willing and available work force on the doorstep of the base. There were good reasons, and there still are today, for retaining it, and I hope that something can be rescued.
	Now that the future of the base has been secured, I want to start where any forward-thinking organisation would start: with our youth. Stafford has really good cadet forces for the Army, the air and the sea, and MOD Stafford provides a good home for the Army and Air Cadets. I am happy to confirm that I visit them regularly. I find really enthusiastic young minds and bodies willing to learn new skills, to attempt to gain new qualifications and to gain good discipline—both self-discipline and the discipline that comes from working with a team—from the work that they do in the cadets at MOD Stafford. I feel strongly that we should work hard to involve more young people in cadet forces, where they can learn skills that will stay with them for life. They will be able to have a crack at gaining valuable qualifications, including Duke of Edinburgh awards, and some choose careers in the services as a result of positive experiences in the cadets.
	While I am on the subject of youth, I want to draw to the attention of my right hon. Friend the Minister a decision that was recently taken by Defence Estates—I know that he will not be able to respond to this tonight—in answer to my asking whether a local brass and drum marching band, Stafford Lancers, might have access to the MOD Stafford site for its playing and marching practice. They are very noisy people when they practise, and when they do so at local schools, some residents are not very happy about it. These youngsters, some of whom have been working with Stafford Lancers for more than a dozen years, might otherwise have no activities to engage in during their leisure time, and some might come from deprived backgrounds, but in Stafford Lancers they learn new skills and get the satisfaction of achievement. They have also been winning national and regional awards for years. It is a pity, therefore, that Defence Estates has recently concluded that it cannot provide them with the necessary space for their practice at Stafford.
	I turn to the subject of our Territorial Army. Stafford lost its only training base for the TA as a result of the strategic review in 1998, when the drill hall at Kitchener house in Lammascote road was closed and subsequently sold. Our TA involvement in Stafford finished as a result, even though there are valuable TA contingents located around the county of Staffordshire and neighbouring ones in Wolverhampton and Telford. Will my right hon. Friend tell me whether he is thinking of bringing back regular TA training to MOD Stafford? Closer ties with the TA obviously help to support our regular forces, and having a training base at Stafford might help to attract more residents of the area to be part of the TA while still carrying out their work and studies locally.
	On the regular armed forces, can we expect to see additional armed forces at MOD Stafford in the coming years? As more forces are relocated to the UK from Northern Ireland and later perhaps from Germany, places such as Stafford could offer them new bases. Does the Minister agree that the midlands as a whole could offer several options for accommodating returning members of the armed services? I would like to assure him that people in Stafford would welcome playing their part in bringing the troops back to homes in our region.
	What of the MOD's plans for the so-called super-garrisons of the future? Will my right hon. Friend tell me about the latest developments and plans for them and whether it is within his consideration that one could perhaps be located at Stafford at some time in the future? What exactly are the plans for the future and what kind of timetable is being worked to presently? Stafford has always been very supportive when it comes to its military base, and the community benefits from it and appreciates its presence in our midst. If there were to be a super-garrison at the Stafford base, it would be useful for the Government to talk to the regional bodies responsible for planning, housing and infrastructure and for economic development. Clearly, such a major change in use would need careful planning.
	I would like to advise my right hon. Friend that it would be useful to talk to Stafford borough council as soon as possible, because it is preparing its local development framework right now. I foresee that a larger base at Stafford would need more accommodation and I can see opportunities as the council develops its plans for housing for some of the military land to become valuable house building land of the future. I believe that the base could be reconfigured to give up some land for housing and to make use of either the money or building works in return for providing more forces accommodation on the remaining base. To do that, we really need to talk to the planners now; otherwise, the opportunity will be missed.
	Generally, the base at Beaconside, Stafford has gone through many changes in recent years regarding both occupancy and resources, but it is now time to look forward once again with optimism and determination to the future. The base has been an integral part of Stafford's economy for more than 60 years, providing civilian jobs and services personnel who buy homes, find jobs for their spouses and partners, send their children to schools and shop locally. It is a busy place today with Army Signals, Tactical Supply Wing, Army Cadets, Air Training Corps, MOD police, the defence fire and rescue service and, of course, the supporting civilian staff. Sadly, we are losing civilian storage and distribution jobs, but the military presence helps offset at least some of those job losses. MOD Stafford now has security and the community is ready and willing to welcome further military uses.
	Then there is the question of the name for the Army barracks. We had an interesting and full debate locally about the many possibilities. We have discussed famous battles of the past in which Stafford forces, such as the Staffordshire Regiment, have been involved. We have discussed famous generals of the past who were involved with the county; and we also considered former war leaders, such as Churchill. Personally, I think that we should go back to local ties. The reason why the area is called Beaconside is that it was the site of one of the national network of beacons that this country had centuries ago to warn against a possible invasion or threat. I believe that something like "Beacon barracks" or "Beaconside barracks" would be the best name for the barracks in future.
	Talking of beacons, for centuries the country's network of beacons on high ground, such as Beacon hill on the edge of Stafford town, has been a symbol of our fortitude and resistance in the face of external threats to our security. Just as the beacons signalled readiness, resolution and reassurance, so in this modern age MOD Stafford and our other military bases around the country fulfil exactly the same role for all of us.

Bob Ainsworth: I begin by congratulating my hon. Friend the Member for Stafford (Mr. Kidney) on securing the debate and thank him for providing me with the opportunity to speak to him on this issue before this evening's debate. I should also like to pay tribute to his tireless efforts to ensure that his constituents' interests are fully represented as we go through the process of determining the future defence presence on the Stafford site and in the west midlands area more generally. Once again, he has set out his case cogently and well.
	I also echo my hon. Friend's generous words about my predecessor, my right hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Mr. Ingram)— [Interruption.] There we are, it should sound like "Lesmahagal", as I am advised by Mr. Speaker! It seems that my predecessor dealt with my hon. Friend in the same way as he dealt with others—in an honest and straightforward manner, which was appreciated by most of those who met him.
	My hon. Friend will recall that my predecessor outlined the position regarding what was known as RAF Stafford during an Adjournment debate in early 2006. I welcome the opportunity today to bring the House up to date on the current position.
	The defence estate supports the provision of defence capability. That means that its usage must be kept under review to ensure that it is the right size and quality to meet future requirements. That constant process of review has had particular implications for the Stafford site in recent years.
	As my hon. Friend is aware, the Stafford site's history is closely linked with the RAF. Following the departure of the RAF logistics units in early 2006, however, direct RAF interest in the Stafford site ceased. That left the Defence Storage and Distribution Agency and the Tactical Supply Wing, a joint helicopter command unit that supports deployed helicopter operations, as the primary users of the site.
	As announced by the previous Secretary of State for Defence in July 2005, planned improvements in the way that we manage the defence supply chain mean that we can reduce our storage and distribution capacity, while saving money and becoming more effective. As part of those changes, the storage and distribution centre at Stafford will close at the end of the year. As my predecessor told my hon. Friend previously, there is no chance of revisiting or reversing that decision.
	The centre is one of three storage and distribution centres that will close around the country by 2009. Given the consequences for staff, the decision to close the three centres was a difficult one, and we are committed to supporting those affected. An early release scheme has already been run across the Defence Storage and Distribution Agency as a whole, and staff who applied were offered early release by May 2007. At Stafford, a follow-up early release scheme commenced on 18 June 2007 for staff in the travel-to-work area. Through those measures, we are confident that there will be minimal redundancies as a result of the closure of the storage and distribution centre.
	Another aspect of the Defence Storage and Distribution Agency's activities at the site is Stafford Engineering Wing—now renamed Engineering Services. The future of that function was determined in November 2006. Work not related to product storage, such as in-depth repair work, will remain at Stafford, with responsibility transferring to the Army Base Repair Organisation. Work related to product storage will transfer to Donnington with other Defence Storage and Distribution Agency functions.
	The changes to Engineering Services take effect on 1 October 2007. We are fully engaged with the trade unions with the aim of minimising the impact on the individuals affected. Every effort is being made to minimise compulsory redundancies through a number of measures, including redeployment elsewhere in the Ministry of Defence and voluntary early release.
	As my hon. Friend is aware, in parallel with the reductions in storage and distribution activity, we have been working towards establishing a permanent Army presence at Stafford. In April 2007, 22 Signal Regiment formed at Stafford, with the necessary infrastructure improvements completed on time. In February 2007, 248 Gurkha Signal Squadron and 222 Signal Squadron moved from their previous units to Stafford and began to settle in. 217 Signal Squadron is now formed and growing steadily, and, together with the support squadron, there are now some 450 soldiers in the regiment and some 200 Army families living in the Stafford and Donnington area.
	The regiment has already deployed on operations and has supported a number of events in the borough. I am pleased to say that soldiers and their families have been made to feel very welcome by the local community. I believe that my hon. Friend will be at its official formation parade later this month. The regiment is expected to be more than 500 strong by the end of the year and, together with a small formation of station headquarters staff, Army recruiting teams and the Tactical Supply Wing, we will have more than 800 regular military personnel at the Stafford site.
	To complete the current picture, Stafford also provides headquarters for 12 Signal Group, a Territorial Army Signal unit that carries out signals training for the Army across the country, and there is also a cadet company headquarters at the site.
	Looking ahead, we are examining a number of possible options that would result in the consolidation of the Army's presence at the site. There are plans for the relocation of other cadet units to Stafford, and we are considering the feasibility of making Stafford home to 35 Signal Regiment, a TA unit affiliated to 22 Signal Regiment. We are also considering Stafford as a temporary location for vehicle storage as facilities at Ashchurch are redeveloped. However, I am not in a position to confirm those moves today.
	As my predecessor announced on 24 July last year, a study team is examining the long-term basing requirements for elements of the UK's Germany-based forces, particularly the headquarters of the Allied Rapid Reaction Corps, 1 Signal Brigade and 102 Logistic Brigade. Stafford is one of three sites being considered as potential bases for elements of 102 Logistic Brigade and 1 Signal Brigade who may return from Germany to the UK. Although a final decision on the future basing of HQ ARRC may be announced before the end of the year, we do not expect to be in a position to announce our final decision on the future basing of 1 Signal Brigade and 102 Logistic Brigade before next year at the earliest. Owing to the relative immaturity of our proposals, no discussions have yet been held with local authorities in any of the shortlisted locations for 1 Signal Brigade and 102 Logistic Brigade, but we hope to be in a position to start the process soon.
	As for the long-term aspirations for Stafford, my hon. Friend is already aware that over the next 30 years the Army aspires to base its people in what, as he knows, are called super-garrisons. The Army is developing its policy in that regard, but the benefits might lead to a smaller number of larger sites, providing a better quality of life and more facilities for Army families. Progress on super-garrisons will depend upon a range of factors including the availability of resources, but there is no doubt that the west midlands is one of the areas with the potential to develop a super-garrison. Partly with that in mind, we currently have no intention of disposing of any land, at Stafford for housing or any other use, in order to retain that flexibility.
	I assure my hon. Friend, as has my predecessor, that we understand the need to engage with all relevant Departments, regional bodies and local authorities as we develop our super-garrison proposals. Indeed, officials from Defence Estates are already engaged with the west midlands regional spatial strategy, and a marker will be placed for the possible development of a west midlands super-garrison demonstrating the MOD's intentions for the area.
	My hon. Friend said that he would appreciate an update on the renaming of MOD Stafford. As he is aware, we have held informal discussions with various stakeholders, units, local dignitaries and the Stafford taskforce to find the right name. MOD Stafford is located in the Beaconside area, as he said, which is so-named because of its use for signalling beacons since Tudor times. Against that background, my hon. Friend will be pleased to hear that the name "Beacon barracks" emerged as the strong favourite, given that it has strong local connections and is also relevant to the Royal Signals. I am therefore delighted to announce that the barracks should now be known as Beacon barracks.

David Kidney: I am grateful to my right hon. Friend for signalling that future name for the base. I was not urging him to flog off pieces of land for housing, but rather to engage with the planners to defend the possibility of there being a reconfiguration of the site in the future that would enable some of the land to be used to create a capital receipt or a contractual obligation in order to get more accommodation built. It is the planning that now needs to be done, not the selling off of the land. May I also ask my right hon. Friend to write to me about the Stafford Lancers, which I mentioned?

Bob Ainsworth: Yes, I will write to my hon. Friend on that second point. On the first point, I hope that he accepts that we must maintain flexibility if we are to be able to accommodate super-garrisons—if that is where we go. Such decisions cannot be taken at present. We will look at whether or not it is too early to engage with the local authority on planning, because I am told from within the Department that my hon. Friend is concerned that we seize any local opportunities.
	Our requirements for land at Beacon barracks have changed, but our need for the estate has not. I can assure my hon. Friend that Beacon barracks feature very much in our plans for the future. We will continue to work closely with the local community and other interested parties as our plans mature.
	 Question put and agreed to
	 Adjourned accordingly at four minutes to Eleven o'clock.